On June 25, we reported the results for Red Hat’s first quarter of Fiscal Year 2009, which began at the start of March 2008. Initial street reaction to our announcement ranged from "Solid Results" to "In-Line." There were two downgrades based on relative valuation, but these analysts remain postive on RHT and want to see further earnings expansion to increase their price targets and ratings. A number of investors and analysts said that they would have liked to see higher billings growth in the quarter, but they noted that the additional color on the solid bookings that was discussed on the call was very helpful. Overall, Red Hat’s earnings were solid, especially considering the current challenges of the economy.

Here are some of our earnings highlights:

Q109 Financial Highlights

  • Revenue: $156.6 million, up 32% y/y
  • Subscription revenue: $130.7 million, up 27% y/y
  • Operating Income increased by 33% y/y
  • Operating Cash Flow increased by 60% y/y
  • Cash & investments balance: $1.35 billion

Q109 Operational Highlights

Here is some feedback that we’ve received from some of our financial analysts since our earnings report:

  • Merrill Lynch said, "RHT remains a cash flow story, especially if the JBoss and Red Hat Enterprise Linux 5 momentum continue. Red Hat has the potential to scale into a highly profitable $1-2bn revenue company by capitalizing on a shift in the server market towards Linux subs from UNIX, especially in BRIC (Brazil, Russia, India, China)."
  • While Oppenheimer & Co., Inc downgraded Red Hat from Outperform to Perform it did state the following, "To be clear, we are not downgrading RHT due to concerns about its operational performance, as we continue to think the company is well positioned to grow 25%+ for the foreseeable future as it expands both its sales and product footprint and JBoss begins to generate consistent traction."
  • Pacific Crest said, "Red Hat is posting consistent results and consistently growing 20%-plus and driving towards 30%-plus. As open-source software continues to gain acceptance, Red Hat should continue to be a major beneficiary."
  • Although Thomas Weisel Partners downgraded Red Hat from Overweight to Market Weight, it did say the following, "All else being equal, we will look for an acceleration in open source adoption and deployments (including Linux, JBoss, MetaMatrix, and GFS) as companies seek higher ROIs in a weakening economy or a sudden improvement in renewal rates as catalyst to revisit our rating."
  • Piper Jaffray said, "Non-operational impact from lower interest rates creates slightly adverse optics for FY09 EPS guidance. However, favorable commentary on pipeline and bookings growth, plus a 36% y/y increase in deferred revenue, set the stage for ongoing multi-year growth of 20-25%+ due to RHT’s unique open source value proposition."

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