Red Hat Crosses $2 Billion Mark, Sees Strong 2017

Red Hat in fiscal year 2016 became the first open source company ever to reach $2 billion in revenue, only four years after it reached the $1 billion mark.
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Red Hat finished its fiscal 2016 by reaching $2 billion in revenue, as it had projected that it would last September. Revenue was up 15% over a year earlier. By the final accounting, released Tuesday, March 22, there was $50 million to spare for year ending Feb. 29, with revenue closing at $2.05 billion.

In the not too distant past, it was remarkable for an open source company whose core products are available as free, open source code, to reach the $100 million or $200 million mark. Red Hat became the first $1 billion open source company in spring 2012, within 20 years of its 1993 founding, and reached $2 billion just four years later.

Red Hat's stock closed at $75.71 per share in Tuesday's trading, high above its February low point of $59.59, as revenue beat estimates by $8.9 million. Shares rose on the news, then dropped 2% in after-hours trading as investors inspected a $6 million shortfall in the estimated billings figure for the quarter, investor site Seeking Alpha mentioned after the earnings announcement.

Revenue for Red Hat's fourth quarter totaled $544 million, up 17% over the same quarter of the previous year, according to the earnings announcement. Red Hat spent $114 million during the quarter to buy back 1.6 million shares, a move that helped increase share values. Operating income for the quarter was $72 million, up 6%, according to generally accepted accounting principles. Operating income for the year was $199 million, compared to $180 million for the previous year. That amounted to earnings per share of $1.07 this year, compared to 95 cents per share last year.

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"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," said Frank Calderoni, executive VP of operations and CFO. The quarter was notable for, among other things, Red Hat announcing Feb. 17 with its old foe Microsoft that Red Hat Enterprise Linux would now run in the Microsoft Azure cloud. 

Red Hat ended its fiscal 2016 with $2 billion in cash and investments and $723 million in convertible debt.

Subscriptions of its Red Hat Enterprise Linux and virtualization software rose 15% year-over-year to $391 million. Subscriptions from JBoss middleware, storage software, and cloud software rose 38% to $89 million. Training and services revenue rose 8% to $63.9 million.

During the second quarter 2015 earnings report on Sept. 21, 2015, CEO Jim Whitehurst projected revenue reaching the year-end milestone. He said at the time, "We are thrilled to be the first open source company to achieve an annualized run-rate of $2 billion."

Forrester's Richard Fichera attributes part of Red Hat's growth to its early commitment to running containers in the data center. One of its new products is the Atomic Server for container hosts, a lightweight version of Linux. It also manages containers along with other resources under its Satellite systems management product.

For fiscal 2017, ending Feb. 28, 2017, Red Hat expects revenue of $2.38 billion to $2.42 billion. In the first quarter, it expects revenue of $558 million to $566 million.

Red Hat's cofounder and first CEO Robert Young was notable for saying "It's not my goal to make my company as big as Microsoft. It's my goal to make Microsoft as big as my company." As it reaches the $2 billion mark, the divide between the two is still great, with Microsoft reporting $22.2 billion for its fiscal 2015. Red Hat may never match the Windows giant in revenue. At the moment, though, it is closing the gap, not watching it grow larger.