What’s happening with Red Hat?

Red Hat CEO: Subscription revenue grew 17%

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Shares of Red Hat have dropped more than 10% in a matter of days after the latest earnings. What gives?

"You may recognize Red Hat as the largest purveyor of open-source Linux operating systems for all sorts of enterprises," Cramer said.

And after the , "pros went into sell first and ask questions later' mode.

That's because billings growth disappointed the Street. Although it increased by 8% year over year analysts were looking for a 14% increase.

As far as the Street was concerned, Red Hat's ability to sustain billings growth at a mid-teen percentage rate had been called into question.

And for the sixth straight quarter, the company's expenses grew faster than its billings.

However, Cramer noted many other metrics were solid.

Net income rose to $41 million, or 21 cents per share, in the second quarter compared with $35.0 million, or 18 cents per share, a year earlier.

Excluding items, the company reported earnings of 35 cents per share. Revenue grew 16 percent to $374.4 million.

Analysts had expected adjusted earnings of 33 cents per share on revenue of $372.1 million.

Part of the issue is that, in recent years Red Hat has been considered a cloud stock and therefore the Street expects cloud-like growth.

Cramer isn't so sure that's the right way to think about Red Hat.

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"Both Salesforce.com and Amazon use Red Hat to power their cloud infrastructure, which is how the company got this reputation as a cloud player, but at the end of the day, these public cloud providers account for just 5% of Red Hat's revenues," Cramer said.

For the most part, "Red Hat is similar to Oracle or SAP, in that if you're using their product, you need to store the software on your own servers within a datacenter room tucked somewhere in your office," Cramer explained

Therefore question becomes, "was the sell-off an over-reaction with the Street not understanding the business? Or is open source software less revolutionary than it used to be now that everyone seems to be switching to the cloud?"

Cramer will be watching.

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