Earnings preview: What to expect from Red Hat’s Q1 report

Open-source software company Red Hat, Inc. (NYSE: RHT), which is on the way to becoming a part of International Business Machines (IBM), will be publishing first-quarter results Thursday after the market’s close.

Taking a cue from the stable market for cloud computing solutions, analysts have predicted a 19% year-over-year increase in first-quarter earnings to $0.86 per share. Driving the profit growth, revenues are seen gaining about 15% to $931.6 million.

Going by the past performance, wherein the company beat expectations in all of its reporting periods in the last fiscal year, the chances of first-quarter results surpassing the forecast are very high. Red Hat’s continuing dominance in the Linux server market is expected to spur further subscription growth.

The North Carolina-based tech firm continues to witness widespread adoption of its products by businesses for deploying applications on hybrid and multi-cloud environments, which will be reflected in the first-quarter results.

The company continues to witness widespread adoption of its products by businesses for deploying applications

The management is expected to provide updates on the proposed merger between Red Hat and IBM, which is on track for closure in the second half of the year after securing most of the approvals. Earlier, it was delayed for want of regulatory clearance, including antitrust approval. Currently, the build-up of investor sentiment is centered on the pending merger.  

Also see: IBM Q1 2019 Earnings conference call

Supported by a double-digit increase in subscriptions, revenues jumped 14% to $879 million in the fourth quarter, lifting adjusted earnings up by 26% to $1.16 per share. The bottom-line also benefitted from lower income tax provision, and topped the Street view. The hybrid cloud technology solutions witnessed solid demand during the quarter. 

Microsoft (MSFT), which competes with Red Hat in multiple areas, reported above-consensus revenues and earnings for the third quarter, with solid contributions from all the three business segments. Earlier this month, Salesforce (CRM) reported a 26% growth in first-quarter earnings to $0.93 per share even as revenues increased by a fourth to $3.7 billion.

Red Hat’s stock climbed to a record high this week, crossing the $185-mark. It has been hitting new highs consistently since the beginning of the year, gaining 7% during that period. Over the past twelve months, the stock moved up 31%.

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