Earnings preview: Pending deal with IBM puts spotlight on Red Hat’s Q4 report

Red Hat (RHT) has been drawing the attention of Wall Street ahead of its fourth-quarter report, due to the uncertainty surrounding the closely-followed buyout deal with IBM (IBM). The results will be published on March 25 after the market closes. It is widely expected that profit will increase by 11% annually to $1.01 per share. Analysts are also looking for a 14% growth in revenues to $883.85 million.

The Raleigh, North Carolina-based open source software company has been witnessing a steady increase in the adoption of its technologies among enterprises for deploying applications on hybrid and multi-cloud environments.

The IBM-Red Hat deal has been delayed pending regulatory clearance, including antitrust approval. On completion of the transaction, tentatively in the second half of 2019, Red Hat will be integrated into the Big Blue’s Hybrid Cloud division. Post integration, IBM expects to leverage Red Hat’s cloud technology and regain its waning growth momentum amid the continuing slowdown in the PC market.

The IBM-Red Hat deal has been delayed pending regulatory clearance, including antitrust approval

Benefitting from a further strong rise in subscriptions, Red Hat’s revenues moved up 13% to $847 million in the third quarter when adjusted earnings surged 32% to $0.96 per share. The company recently rolled out an initiative aimed at updating popular programming language JAVA for cloud-based computing requirements. The project titled Quarkus is the latest among the many attempts to make Java cloud-friendly.

Earlier this year, Red Hat’s rival and industry leader Microsoft (MSFT) posted a 12% increase in revenues to $32.5 billion in the second quarter. At $1.10 per share, earnings surpassed Wall Street estimates. Meanwhile, IBM (IBM) reported a decline in revenues to $22 billion for the most recent quarter when adjusted earnings dropped 5% to $4.87 per share but beat the estimates.

Red Hat’s shares gained around 26% within a couple of days after IBM officially announced the $34-billion buyout deal in October last year. The rally also marked the stock’s strong recovery from the lows seen during the mid-months of 2018. Since then, it remained stable and reached a new peak this month.

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