Red Hat Raises Its Hat for Market Expansion

Josef Ray is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Post-market trading saw shares of Red Hat (NYSE: RHT) climb almost seven percent, ending with a stock price of $56.29 on Dec. 26, despite repercussions expected from the drop in the company’s net profit to $34.8 million for the third quarter, down from last year’s $38.2 million. Overall, the company’s earnings fell by about nine percent; losses ostensibly generated by expenses such as higher compensation for its workers and its recent acquisition of ManageIQ – a privately-held software company - at a hefty $104 million price tag. Nonetheless, earnings were high compared to previous expectations, and so were revenues, which managed to go beyond industry estimates. Stock growth is pegged at an impressive 27% for this year – good news for present and would-be Red Hat stockholders.

The NJ-based ManageIQ focuses on automation and cloud management. The buy, although possibly a game-winning one, has yet to make an impact on the revenue of acquiring company Red Hat. This deal is expected to up the ante in terms of operating costs by approximately $8 million for the coming year. At the end of the third quarter on Nov. 30, Red Hat’s profits were at $0.18 per share, compared to a cent higher for last year. Adjusted earnings, on the other hand, increased from $0.28 to $0.29, stock-based compensation and related items excluded.

Red Hat, Jim Whitehurst says, has completed two other acquisitions, with plans of a fourth potentially contributing to further growth in the market via a slew of open-source solutions. The Chief Executive and President of Red Hat also states that these actions serve to engage and expand its demographic, as well as strengthen its product portfolio to compete with big boys Microsoft (NASDAQ: MSFT)  and Oracle (NYSE: ORCL).

Microsoft did not fare well for the three days preceding Dec. 21, and only seemed to be getting by, despite the mad rush for Xbox 360 consoles this holiday season. Shares of the pioneering software developer and hardware manufacturer closed at $27.45 – an 0.83% loss of $0.23 cents. Oracle is set to start the year right, as sales increased by a stunning 17%, improving stock value and putting it at a nineteen-month high.

Red Hat’s strength lies in its record sales growth as an open-source software provider, although said costs – in addition to other expenses – have diminished the company’s bottom line. It plans to spend more to – literally and figuratively – expand in the business of info storage, as well as increase expenditure on acquisitions. Last year also saw Red Hat announcing the move of 600 workers to a new office; yet another addition to a list of company expenditures.

The Raleigh, NC-based Red Hat is known for the Red Hat Enterprise Linux operating system, and has also acquired JBoss, another open-source vendor focusing on middleware. Red Hat’s offerings include applications, consulting services, management products, middleware, support, and training. It also helps develop freeware, and with the acquisition of a number of proprietary software, releases its free projects using the GNU GPL language while still maintaining copyright laws and selling subscriptions to mainstream users. As of mid-year, it is the biggest corporation to contribute to Linux’s kernal.


JosefRayDagatan has no positions in the stocks mentioned above. The Motley Fool owns shares of Microsoft and Oracle. Motley Fool newsletter services recommend Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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