Earnings Preview: IBM deal in focus as Red Hat gears up for Q3 report

The upcoming earnings announcement of Red Hat (RHT) will be one of the most closely-watched events, with investors looking for the details of the recent agreement to be acquired by IBM (IBM).

The company, which provides open source software solutions, is slated to announce its third-quarter results Monday after the closing bell. It is expected to report earnings of $0.87 per share for the November quarter when revenues are predicted to grow 14% year-on-year to $853.6 million.

The growing demand for hybrid cloud technology solutions and a further sharp increase in subscription revenue – thanks to emerging technologies like Ansible and OpenShift – will fuel the bottom-line growth.

A better than expected outcome, which is very likely considering the positive trend seen in the previous four quarters, might drive the stock higher. Definitely, this is not the time to sell as the uptrend will be sustained in the foreseeable future, especially considering the shareholder meeting to be held early next year to vote on the IBM deal.

The growing demand for hybrid cloud technology solutions and higher subscription revenue might fuel Red Hat’s bottom-line growth

In the second quarter, a sharp increase in operating costs weighed down on the Raleigh, North Carolina-based company’s reported profit. Excluding one-time expenses, earnings grew 11% to $0.85 per share aided by a 14% revenue growth.

As part of ramping up its high-demand hybrid cloud offerings, Red Hat this week acquired Boston-based tech firm NooBaa for an undisclosed amount. It is believed that the company is well positioned to take forward its growth strategy, buoyed by the recent acquisitions and strategic partnerships. Of late, the company has been focusing on hybrid cloud architecture and cloud-enabling technologies to remain relevant in the fast-growing sector.

Also see: Red Hat Q2 2019 Earnings Conference Call Transcript

Among competitors, Oracle (ORCL) will be reporting the results for its most recent quarter Monday after the market closes. The software giant is expected to earn $0.78 per on revenue of $9.53 billion.

Shares of Red Hat maintained a steady uptrend in recent years. After losing momentum mid-year, the stock surged and hit a record high last month after IBM agreed to acquire it for $34 billion. The stock opened Friday’s session higher but slipped into the negative territory as trading progressed.

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