Shares of open source software firm Red Hat (RHT 120.89, -7.97 -6.2%) move lower into the afternoon on Wednesday; it appears that last night’s Q3 beat and Q4 guidance was not enough to prop up the already heightened expectations heading into the print.
First, for those who may not be familiar, RHT is a provider of open source software solutions specializing in cloud, Linux, middleware, storage and virtualization technologies. The company also offers support, training, and consulting services.
The stock is lower today despite beating on the top and bottom lines for Q3; specifically, RHT reported earnings of $0.73 per share on revenue growth of 21.6% to about $747.98 million. Additionally, Q3 billings came in modestly ahead of expectations at about $805.25 million while operating margins came in about 20 basis points higher than RHT’s guidance at 23.9%.
Subscription revenue from Infrastructure-related offerings for the quarter was $495 million, an increase of 15% in USD year-over-year, or 14% measured in constant currency. Additionally, subscription revenue from Application Development-related and other emerging technology offerings for the quarter was $162 million, an increase of 44% in USD year-over-year, or 42% measured in constant currency.
While this quarter was impressive, today’s stock move makes it glaringly clear investors’ cautious sentiment heading into a tough compare in Q4. RHT’s Q4 guidance was ahead of market expectations on both the top and bottom lines with $758-763 million and about $0.81 on non-GAAP operating margins around 24.6%. The company is up against a 29% billings comp next quarter, and management expressed expectations for the bookings duration metric to be lower than last year’s record 25 months.
Against cloud giants like Amazon’s (AMZN 1178.55, -8.83 -0.7%) AWS and Microsoft’s (MSFT 84.82, -1.01 -1.2%) Azure, RHT still manages to carve out a significant section of the pie. Deals of more than $1 million climbed to 94 in the quarter, up 30% year-over-year, as a record 17 were greater than $10 million.