Red Hat acquires API management firm 3scale, posts Q1 results

The open source software company is buying the API management leader to complement its existing middleware product portfolio.
Written by Stephanie Condon, Senior Writer

Red Hat on Wednesday announced it's acquiring 3scale, an API management leader that will complement its existing middleware product portfolio. The company also posted first quarter results for fiscal 2017, meeting earnings expectations and surpassing expectations on revenue.

While its Q1 results were solid, Red Hat said the 3scale acquisition would increase GAAP operating expenses for the current quarter by approximately $3 million (or 1 cent a share), and for the full fiscal year by $7 million (or 3 cents a share), prompting shares to fall in after-hours trading.

3scale complements Red Hat's middleware portfolio and Red Hat OpenShift "by enabling companies to create and publish APIs with tools such as Red Hat JBoss Fuse, and then manage and drive adoption of those APIs once they have been published," Craig Muzilla, a Red Hat senior vice president, said in a statement.

IDC analyst Al Hilwa said that 3scale should be another growth driver for Red Hat and a great tie-in with its mobile offering. "Red Hat acquired FeedHenry almost two years ago and got some back-end capabilities at the time, but 3Scale takes Red Hat's API capabilities to a whole other level with its API management offering," he said.

Meanwhile, for Q1 2017, the open source software company reported non-GAAP net income of $92 million, or 50 cents per share. The company reported $568 million in revenue, up 18 percent year-over-year.

Subscription revenue for the quarter was $502 million, up 18 percent year-over-year, making up 88 percent of total revenue. Subscription revenue specifically from infrastructure-related offerings for Q1 was $403 million, an increase of 14 percent year-over-year. Application development-related revenue, as well as revenue from other emerging technologies, came to $98 million, an increase of 39 percent year-over-year.

Wall Street was looking for earnings per share of 50 cents on $562.7 million in revenue.

For the second quarter, Red Hat is expected non-GAAP earnings per share of 54 cents on revenue of $587 million to $593 million. For the full fiscal year 2017, the company is expecting non-GAAP earnings per share of $2.19 to $2.23 on revenue between $2.38 billion and $2.42 billion

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