| Tech Stock News and Analysis |
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| Thursday, June 29, 2006 |
Red Hat Inc. (Nasdaq stock symbol RHAT), a distributor of open-source Linux software, reported an 11 percent increase in first-quarter net income on Wednesday, boosted by subscriptions from corporate customers.
But Red Hat's stock fell 5 percent in after-hours trading as the company said confusion over comparisons of the results to Wall Street estimates spooked investors.
Red Hat's net income rose to $13.8 million, or 7 cents per share, in the first quarter, ended May 31, from $12.4 million, or 7 cents per share, a year earlier. Revenue rose to $84.0 million from $60.8 million, a year ago.
Analysts, on average, had expected net income of 6 cents per share on revenue of $83.3 million in the first quarter, according to Reuters Estimates.
A spokeswoman for Red Hat said the company earned 14 cents per share, excluding stock-based compensation, in the first quarter based on a 5 percent tax rate. Wall Street analysts had expected net income of 9 cents per share, or $17.5 million, based on a different tax rate, the company said.
Dion Cornett, Red Hat's vice president of investor relations, said this makes an apples-to-apples comparison difficult and the confusion over the results was likely a reason investors drove down the company's stock.
"Investors want a simple story," he said. "Regardless of what we did, you know we have a complicated story and the initial reaction is not surprising."
Red Hat Chief Financial Officer Charlie Peters said the company gained market share from rivals during the quarter.
Red Hat estimated a tax rate of 37 percent of pretax income in the first quarter, but the company said once it takes deductions and accounts for tax credits, its cash tax rate will be 5 percent for the foreseeable future.
Red Hat provides update and support services for its version of Linux, which can be copied and modified freely, unlike proprietary software such as Microsoft Corp.'s Windows operating system.
Industry analysts said Red Hat continues to gain market share against Novell Inc. , a developer of networking software, while the company moves into new markets like small- to medium-sized businesses.
On a diluted basis, Red Hat's net profit rose to $14.7 million from $13.96 million a year earlier. These figures account for changes in interest and administrative expenses if its convertible bonds become stock.
The company also raised its fiscal 2007 revenue target to a range of $400 million to $405 million to reflect the recent acquisition of rival JBoss and stronger-than-expected business.
This was up from a previous forecast range of $370 million to $375 million and above the average Wall Street view for full-year revenue of $383.4 million.
Red Hat said in April it would acquire JBoss for at least $350 million in a deal analysts said would allow the company to offer a more complete set of software. JBoss specializes in middleware, the software layer that sits between the operating system and various applications.
JBoss will also add about $1.5 million per quarter in stock compensation expense and reduce gross margins by about 75 basis points mainly because the business generates more revenue from less-profitable services, the company said.
Shares of Red Hat have fallen nearly 13 percent since the company last reported quarterly earnings on March 28. During that same period, the Nasdaq fell about 8 percent.
Red Hat fell to $23.72 on the Inet electronic brokerage system in after-hours, from a closing price of $25.01 on Nasdaq. |
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