Red Hat sales softer than expected ahead of IBM purchase

Red Hat's bottom line beat Wall Street targets, but sales fell short of expectations. Red Hat's growth will be closely watched as IBM aims to close its acquisition.

Red Hat is seeing softer sales relative to expectations as it preps to become part of IBM.


The company reported third quarter earnings of $94 million, or 51 cents a share, on revenue of $847 million, up 13 percent from a year ago. Non-GAAP earnings for the third quarter were 96 cents a share.

Wall Street was looking for non-GAAP third quarter earnings of 87 cents a share on revenue of $852.8 billion. Red Hat said currency fluctuations hurt sales somewhat. On a constant currency basis, Red Hat sales would have been up 15 percent.

Red Hat didn't provide an outlook ahead due to the pending IBM transaction.

The sales miss is worth watching given IBM has so much riding on the Red Hat purchase. IBM is betting that Red Hat can turbo charge its hybrid cloud business. It remains to be seen how the IBM and Red Hat cultures come together. On the bright side, the two companies have been partners for years.

Red Hat CEO Jim Whitehurst talked up a few milestones including:

  • Red Hat closed 100 deals worth more than $1 million. 
  • Red Hat OpenShift and Ansible Automation both added more than 100 customers in the third quarter. 
  • The company's top 25 deals renewing in the third quarter renewed at an upsell rate of 120 percent. 
  • Subscription revenue in the third quarter was 87 percent of the total.

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