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One Item In Red Hat’s Q4 Earnings That Blew The Surprise

Despite a fourth-quarter earnings report that flew past estimates, Red Hat ( RHT ) stock fell Wednesday as analysts raised concerns of an unexpected slowdown. The line item that spooked investors was a slowing in customer billings and confusion about future revenue. “The fourth quarter was a mixed bag, with signs that fundamentals remain strong with large deals, but also billings deceleration and a lack of margin expansion for fiscal 2017,” wrote Pacific Crest Securities analyst Ben McFadden. Red Hat stock was down more than 5%, below 72, in morning trading on the stock market today . Shares had touched a 15-month low below 60 last month after hitting a 16-year high above 84 in December. Red Hat is the leading provider of Linux-based software that businesses use to run operations. Revenue comes from subscriptions that customers pay for software support, training and integration services in using the open-source version of its Linux operating system. Red Hat reported fiscal Q4 earnings after the market close Tuesday for the quarter that ended Feb. 29. Revenue rose 17% to $544 million, or 21% in constant currency, year over year. Earnings per share minus items jumped 21% to 52 cents, the fourth quarter in a row of double-digit gains. Both beat Wall Street estimates. First-quarter revenue guidance also beat, though EPS only met expectations. “Growth of reported billings and deferred revenue were not very good relative to expectations,” BMO Capital Markets analyst Keith Bachman wrote in a research note. “Red Hat’s quarter had something for both bulls and bears.” For the past seven quarters, deferred revenue grew by an average of 20% year over year. In fiscal Q4, it rose 17.6%. Billings rose 13%, compared with the average of 19% in the prior three quarters, Bachman wrote. He maintained an outperform rating on Red Hat stock but lowered his price target to 88 from 90, based on concerns about lower billings and cash flow. RBC Capital Markets maintained an outperform rating on Red Hat with a price target of 95. Needham kept a buy rating and price target of 98. Red Hat has made a strategic shift to cloud computing, a fast-growing tech field dominated by Amazon.com ( AMZN ) , Microsoft ( MSFT ) and Alphabet ( GOOGL ). In November, Red Hat announced a partnership with Microsoft, which made Red Hat software available on Microsoft’s Azure cloud platform. Amazon is being watched by analysts in light of its Amazon Web Services stepping up Linux offerings, in competition with Red Hat.

Red Hat Q4 Earnings Beat Views, But Q1 Profit Outlook Merely Meets

Leading Linux software provider Red Hat ( RHT ) late Tuesday reported fiscal Q4 earnings and revenue that beat Wall Street expectations and helped ease fears of tech spending softening, but its EPS outlook for the current quarter merely met views. Shares were down 4% in after-hours trading, after the earnings release. In Tuesday’s regular session, Red Hat stock rose 1.1% to 75.71. Shares had touched a 15-month low below 60 last month after hitting a 16-year high above 84 in December. The Raleigh, N.C.-based company posted earnings per share minus items of 52 cents, up 21% from the year-earlier quarter. Sales for the quarter that ended Feb. 29 rose 17% to $544 million. Both numbers beat the consensus estimate. Analysts polled by Thomson Reuters on average had expected the cloud vendor to report EPS ex items of 47 cents on revenue of $537 million. For its fiscal Q1, Red Hat guided EPS ex items at 50 cents on revenue of $558 million to $566 million, vs. 44 cents and $481 million in the year-earlier quarter. Analysts had modeled 50 cents and $554.6 million, so while the sales outlook beat, the EPS outlook merely met. Drexel Hamilton analyst Brian White called Q4 “another strong quarter” with a “strong revenue outlook” in a research note after the earnings release. Red Hat revenue comes from subscriptions that customers pay for support, training and integration services in using the open-source version of its Linux operating system. The platform includes applications, middleware, desktop domains and an operating system. Red Hat was founded 23 years ago. “The fourth quarter marked our 56 th consecutive quarter of revenue growth, contributing to Red Hat’s first fiscal year crossing $2 billion in total revenue,” Red Hat CEO Jim Whitehurst said in the company’s earnings release. “The fourth quarter was a strong close to the year as our results exceeded our guidance. “We maintained a high level of execution throughout the fiscal year, which contributed to greater than 20% constant currency revenue growth in each quarter.” Red Hat Reports Record Year-End Backlog Of $2.13 Billion Red Hat said that it had ended the year with a record backlog of $2.13 billion, up 15% year over year. The company has made a strategic shift to cloud computing, a fast-growing tech field dominated by Amazon.com ( AMZN ), Microsoft ( MSFT ) and Alphabet ( GOOGL ). Red Hat has been able to carve out a share of the pie. It focuses on hybrid cloud services, which partly use the low-cost public cloud and partly provide the privacy of private cloud services. “Investors have asked whether the public cloud is a positive driver for Red Hat,” Whitehurst said on the company’s earnings conference call. “We firmly believe that it will be a hybrid cloud world where applications will run across all four footprints — physical, virtual, private cloud and public cloud. “We are providing technologies that enable choice and consistency across all four environments, and we enhance this value with application development technologies, storage and management.” In November, Red Hat announced a partnership with Microsoft, which made the Red Hat Enterprise Linux (RHEL) available on Microsoft’s Azure cloud platform. As part of the deal, Red Hat will provide Microsoft with its enterprise version of Linux for use as the “preferred choice” on Microsoft’s Azure cloud services. Microsoft, formerly a rival, has been rolling out other Red Hat products, including its JBoss Enterprise Application Platform, Gluster Storage and platform-as-a-service product OpenShift. In a research note Monday, Drexel analyst White said that the movement toward open-source software and the momentum to cloud computing “will provide enough of a tailwind to offset any macro softening.” White rates Red Hat stock a buy, with a price target of 98. “We believe Linux will continue to gain market share in 2016 as next-generation applications are developed on RHEL, while we look forward to development of the Microsoft partnership,” White wrote. In a research note last week, Deutsche Bank analyst Karl Keirstead raised the issue about competition from Amazon, which offers a free Linux open-source operating system and support via its cloud-based Amazon Web Services platform. He concluded that the number of migrations from RHEL to Amazon Linux remains quite modest and mostly confined to small enterprise customers. “Larger RHEL-centric customers have only a small mix of workloads on Amazon Web Services, they value operating system consistency across their hybrid infrastructures, they prefer support from Red Hat and/or view the cost savings of a switch as being too modest to be worth the hassle,” Keirstead wrote. He reiterated a buy rating on Red Hat stock, with a 95 price target. Image provided by Shutterstock .  

Google Cloud Chief Ignites Expansion To Catch Amazon, Microsoft

Alphabet ( GOOGL ) will open data centers in Oregon, Japan and elsewhere before the end of 2017 to support its cloud infrastructure and app platforms and take on Amazon.com ( AMZN ), the industry’s current leader, according to a news report Tuesday. Google has three “cloud regions” now and plans to add another 10 cloud regions over the next 12 to 18 months, either as facilities leased from other providers, or built and operated by Google, according to the Bloomberg report. “Cloud region” is the Google term for a data center equipped with computers and software that customers can rent over the Internet. Google’s new cloud chief Diane Greene – who also sits on the Alphabet board – will oversee the expansion, Bloomberg said. Greene co-founded VMware in 1998. “There was a pretty darn good vision in place and now I’m just bringing everybody together so that we all know what we’re doing,” Bloomberg quoted Greene as saying. “The cloud is a revolution, I mean it’s rivaling the industrial revolution, and it’s pretty fun being this involved.” The openings will increase the number of “cloud regions” run by Google to 15, according the Bloomberg report. Amazon currently has 12 regions and plans to open another five. Amazon unit Amazon Web Services (AWS) is now the biggest provider of infrastructure as a service (IaaS), where customers rent computer servers and data storage systems accessed via the Internet. Microsoft ( MSFT ) ranks second, while Alphabet unit Google ranks third. Cloud computing, an increasingly popular way for companies to run their IT operations. That’s a $20 billion-a-year business forecast to grow 35 percent over the next year, according to Gartner Inc. Google is also working on tools that can broaden its corporate user base to include less technically savvy customers, and it’s embarked on a hiring spree aimed at selling and explaining these new products, according to the report. The Internet company is set to hold a conference in San Francisco for cloud customers starting Wednesday. Amazon stock rose 1.2% to close at 560.48 on Tuesday. Microsoft stock rose a fraction to close at 54.07. Alphabet stock fell a fraction to close at 760.05.