Another Blowout Quarter for Red Hat, as Annual Revenues Approach $1 Billion

by Sam Dean - Mar. 24, 2011Comments (0)

Chalk up another strong quarter for Red Hat, which, following last year's acquisitions of Novell and Sun Microsystems, remains the only public, U.S. company focused on open source technology. Yesterday, the company reported strong financial results for its fiscal fourth quarter, with both revenues and earnings blowing past analyst estimates. Analysts polled by Bloomberg had pegged Red Hat's revenues at $235.1 million, but they came in at $244.8 million. Earnings per share were 26 cents, beating analyst estimates of 22 cents, with earnings reaching $39.4 million for the quarter, and $145.7 million for the fiscal year 2010. Red Hat is fully on track to become the first $1 billion per year open source company.

In this post last summer, we forecasted that Red Hat would become a billion dollar open source company.  The company's business is built on offering support and services for open source software, and subscription revenues continue to drive strong results. Subscription revenue for the fourth quarter was $209.3 million, up 24% year-over-year. For the full year, total revenue was $909.3 million, an increase of 22% over the prior year, and subscription revenue was $773.4 million, up 21% year-over-year. It's hard to argue with those numbers.

"With record bookings and billings in the fourth quarter, we are on a run rate to become the first pure-play open source company to achieve a billion dollars in revenues next fiscal year, a milestone achievement for Red Hat and the open source community," said Jim Whitehurst, President and Chief Executive Officer of Red Hat, in a statement. "We believe the strong demand we experienced was largely driven by customers who are modernizing their data centers and preparing their infrastructure for cloud computing. The comprehensive portfolio that Red Hat has developed with platform, virtualization and middleware products provides enterprise customers with a foundation to deploy the next generation infrastructure."

Red Hat has become increasingly focused on cloud computing and related support and services, and its forecasts are based on strong growth in this area. "This year we focused on growth with aggressive hiring for sales and engineering, launched major product releases and invested in technologies focused on cloud computing," said Charlie Peters, the company's CFO. "These investments produced greater than 20% growth in revenues and non-GAAP operating income for both the quarter and the year. At the same time, we increased non-GAAP operating margins by 110 basis points and improved cash flow. It was a good year."

Indeed it was. Red Hat has not fallen down financially for any quarter in recent memory, including through the toughest times during the recession. The company remains sterling proof that commercial open source-focused companies can flourish, and other open source companies ranging from Acquia to Cloudera are mimicking many aspects of its support-focused business model.


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