Red Hat raises revenue forecast on strong subscription growth

Red Hat, the world's largest commercial distributor of the Linux operating system, raised its full-year adjusted profit and revenue forecast, helped by strong growth in subscription revenue.

Shares of Red Hat rose 4.5 percent in extended trading. (Click here for the latest quote.)

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"... We are benefiting from an improved IT spending environment for open source and cloud enabling technologies," Chief Executive Jim Whitehurst said on a conference call on Wednesday.

Whitehurst said Red Hat was able to renew all of the top 25 deals up for renewal in the first quarter ended May 31 and signed a record number of deals worth a million dollars or more.

Red Hat raised its full-year adjusted earnings forecast to $1.59-$1.61 per share from $1.54-$1.56.

The company lifted its revenue forecast to $1.76-$1.785 billion from $1.73-$1.755 billion.

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Analysts on average were expecting an adjusted profit of $1.55 on revenue of $1.75 billion, according to Thomson Reuters I/B/E/S.

Red Hat is benefiting from higher enterprise demand for its software used in data-centers, for cloud computing and to create virtual computers within an operating system.

The company counts 90 percent of Fortune Global 500 companies as customers, including, Dell, and Alcatel-Lucent.

Red Hat—whose products competes with those of Microsoft and VMware—is investing in developing OpenStack open-source cloud software as companies increasingly subscribe to storage, software and computing services hosted on remote servers.

The company also said on Wednesday it was buying eNovance, a provider of OpenStack-based cloud computing services, for $95 million.

In April, Red Hat bought data-center storage software maker Inktank for $175 million.

Q1 beats

Red Hat's net income fell to $37.7 million, or 20 cents per share, in the first quarter, from $40.4 million, or 21 cents per share, a year earlier.

Excluding items, the company earned 34 cents per share beating analysts' expectations of 33 cents per share.

Revenue rose 17 percent to $423.8 million, above expectations of $414 million.

"Red Hat delivered solid first-quarter results as subscription revenue, and more importantly, billings outperformed expectations," Evercore Partners analyst Kirk Materne told Reuters.

Billings rose 17 percent in the quarter ended May 31, above analysts' expectations of growth of 15 percent.

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Subscription revenue increased 16 percent to $372 million.

"Given that Red Hat's business can tend to be a little slow in their first fiscal quarter, this would appear to be a really solid start to fiscal year 2015," Materne said.

The company's shares were at $55.50 in extended trading after closing at $53.10 on the New York Stock Exchange.

By Reuters