Red Hat falls after beating on revenue and EPS

  • Red Hat beat expectations for revenue and earnings per share.
  • The company's subscription revenue for application development and emerging technology rose by 44 percent.

Red Hat stock fell almost 5 percent on Tuesday after it reported better-than-expected earnings for the third quarter of its 2018 fiscal year, which ended on Nov. 30.

  • EPS: Excluding certain items, 73 cents per share, vs. 71 cents per share as expected by analysts, according to Thomson Reuters.
  • Revenue: $748 million, vs. $739 million as expected by analysts, according to Thomson Reuters.

Red Hat's revenue was up 22 percent year over year. Application development and emerging technology subscription revenue came in at $162 million, which was up 44 percent year over year. Operating cash flow was $160 million, up 18 percent year over year and above the FactSet consensus of $147.8 million, according to StreetAccount.

With respect to guidance, the company said in a statement that it expects 81 cents in earnings per share, excluding certain items, and $758 million to $763 million in revenue in its fiscal fourth quarter. Analysts were expecting 75 cents in earnings per share, excluding certain items, and $753.7 million in revenue for that period, according to Thomson Reuters.

Red Hat brings in revenue from subscriptions, training and support for a distribution of the Linux open-source operating system and other software. Competitors include Hewlett Packard Enterprise, IBM, Microsoft and Oracle.

In this quarter Red Hat announced a partnership with growing public cloud provider Alibaba, as well as new business from SoftBank.

On Dec. 15 Stifel raised its target price for Red Hat stock to $150 per share. "We believe RHT's strategic position continues to strengthen as companies adopt hybrid cloud environments," Stifel's Brad Reback and Adam Borg wrote in a note.

Red Hat stock is up about 85 percent since the beginning of the year.