Red Hat Pins The Blame For Disappointing Quarter On Late-Closing Deals

Red Hat Inc RHT reported disappointing Q3 fiscal 2017 results and lowered its guidance. The fourth quarter is “not shaping up to be a robust quarter,” given soft prints from peers, Deutsche Bank’s Karl Keirstead said in a report. He reiterated a Buy rating on Red Hat, while reducing the price target from $95 to $90.

Disappointing Performance And Prospects

Red Hat posted currency-adjusted billings growth of 10 percent, significantly missing the Deutsche Bank estimate of 15 percent. Subscription revenue growth came in at 18 percent, marginally short of the Deutsche Bank estimate of 20 percent. Operating cash flow was recorded at $136 million, roughly flat year-over-year and below the estimate of $196 million.

“RHT pinned the blame on shorter invoicing durations, deals closing late in the quarter and a few slipped govt deals,” analyst Keirstead mentioned. He noted, however, that the disappointing results could be indicative of softening demand. “The trend for customers to pay less cash up-front (even if they commit to multi-year deals) could depress billings growth for several quarters.”

Oracle Corporation ORCL, Workday Inc WDAY and Palo Alto Networks Inc PANW have reported soft results, indicating that Q4 may not be a robust quarter.

Red Hat announced its revenue guidance for Q4 fiscal year 2017 below the Deutsche Bank estimate and reduced its OCF guide for 2017. Moreover, the company’s chief financial officer has resigned.

The analyst reduced the EPS estimate for 2018 from $2.57 to $2.51.