Red Hat falls after revenue disappoints

Red Hat stock fell as much as 7 percent and then rebounded on Wednesday after the company reported lower revenue than expected for the second quarter of its 2019 fiscal year, which ended on Aug. 31. Executives will discuss the results with analysts on a conference call at 5 p.m. Eastern time.

Here are the top results:

• Earnings: 85 cents per share, excluding certain items, vs. 82 cents per share as expected by analysts, according to Thomson Reuters.
• Revenue: $822.7 million, vs. $830 million as expected by analysts, according to Thomson Reuters.

Overall, Red Hat’s revenue rose 14 percent year over year, according to a statement.

The majority of Red Hat’s revenue comes from subscriptions — to distributions of the Linux open-source operating system and other products. Subscription revenue of $722.7 million was up 13 percent. Analysts polled by FactSet had expected $724.1 million in subscription revenue.

Revenue from training and services was also behind what analysts were looking for, at $100 million, whereas the FactSet estimate was $104 million.

“We don’t have a strong view on the quarter based on checks, but qualitative comments in recent conversations with channels and customers reinforce our concerns regarding headwinds to RHEL [Red Hat Enterprise Linux], middleware and OpenShift,” Raymond James analysts led by Michael Turits said in a note distributed to clients on Monday.

With respect to guidance for the fiscal third quarter, Red Hat is forecasting 87 cents per share, excluding certain items, on around $848 million to $856 million in revenue. Analysts polled by Thomson Reuters had expected guidance of 92 cents per share, excluding certain items, on $862.7 million in revenue for that period.

As for the full 2019 fiscal year, Red Hat said it lowered revenue estimates by $15 million specifically because of foreign-exchange rates. It now looks to post $3.45 to $3.49 in earnings per share, excluding certain items, on $3.36 billion to 3.40 billion in revenue. Analysts were expecting full-year results of $3.47 in earnings per share, excluding certain items, on $3.40 billion in revenue, according to Thomson Reuters.

Red Hat stock is up 19 percent since the beginning of the year.

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