Several comments on Red Hat (NYSE:RHT) after co's F4Q07 report and FY08 guidance.
- JP Morgan notes RHT reported modestly softer than expected Q407 revenue and Q108 revenue guidance, while the company's FY08 guidance encapsulates consensus-and EPS guidance of $0.67-0.72 compares well to consensus of $0.68. They are relieved to not see a downward revision to FY08 margins given recent commentary about JBoss investments. FY08 cash flow guidance of 15-20% growth will likely bring upward revisions to cashflow and provides comfort for billings growth in the 17-23% range for FY08 which compares firm's estimate of 21%. While Q4 could have been stronger, the FY08 outlook is encouraging and should provide support for the stock.
Firm says Cashflow and billings look solid going forward. They have raised their FY08 adjusted operating cash flow to $255M from $246M (guidance was $250-260M) which puts their FY08 billings target at 21%-a modest increase from 20.5% growth in billings heading into the print. Furthermore, the mix of long term billings decreased to 25% of billings from 29% in Q3, and should provide some relief to concerns on elongating cycles though, the number was up YoY from 21%. The increase in the FY08 billings target is the takeaway here and provides comfort over the quarter-to-quarter volatility in subscription and billings growth.
- Bank of America says execution continues and fundamentals remain solid. Although RHT didn't deliver another blowout, the biz continues to trend well, as better than expected subscription rev ($96 mm), solid billings/non-GAAP cash flow ($138 mm, $56 mm), and slightly more bullish '08 guidance overshadowed a $2.3 million training/services revenue shortfall.
What are we doing with the stock? While a tough tech tape could limit some of the upside in the near term, firm remains buyers here, as they were encouraged by another quarter of solid execution and believe Red Hat's risk/rewardprofile is attractive at current levels. In addition, Red Hat remains one of the few secular growth stories in the enterprise software space, which could bode well for the shares should market sentiment rebound in 2H07.
- Baird notes that the risks and noise swirling around this story have begun to fade; 1) Oracle and Microsoft/SUSE have not disrupted demand; 2) projections by some industry analysts that Linux server shipments had slowed proved untrue; 3) JBoss has not experienced personnel defections in the wake of Marc Fluery's departure; and 4) the advent virtualization is not likely to cannibalize RHEL license sales.
Firm's concern had been that the introduction of GPLv3 would create confusion and consternation in the market. The most recent draft introduced just two days ago was most encouraging. The language around the patent provision appeared much less threatening.
The JBoss product offering remains in the early stages of development, and holds considerable long-term prospects. Firm expects Red Hat to remain a disruptive change agent within the software industry, to the continued benefit of its shareholders.
- Goldman Sachs says Red Hat's 4Q FY2007 was a mixed bag, with guidance ultimately putting a positive spin on results that were more in-line with estimates and likely a touch below the more bullish expectations. That said, the most important metrics - namely cashflow and billings both beat their estimates coming in at $46m and $138m (up 35%) respectively compared to their $41m and $133m expectations. Guidance (particularly on cash flow) should result in rising Street estimates. Firm's revised FY'08, FY'09 EPS estimates are $0.70 and $0.83, compared to $0.66 and $0.78. They are initiating FY'10 EPS estimates of $0.94. (Including ESOs expenses their estimates are $0.55, $0.69 and $0.82).
Notablecalls: Strong billings and cash flow guidance sent the stock up ~5% in the afterhours. While I'm positive on the stock l-t as the mgmt continues to execute, it's tough to see any more upside today in the current mkt.