Red Hat closed its 60th consecutive quarter of revenue growth, with its report of a 16 percent year-over-year increase in revenue (to $629 million) in the fourth quarter of its fiscal 2017.
Importantly, more and more of the business the company is doing includes some component of open technology, with “one-third of our largest deals in Q4 containing an OpenStack private cloud component, approximately one-third had an OpenShift container platform component, and more than a third of the deals contained Ansible, our automation management technology,” said Red Hat CEO Jim Whitehurst. “In addition more than half our deals contained five or more technologies from across our portfolio,” added Whitehurst, according to a Seeking Alpha transcript of the earnings call.
Companies in the enterprise market have been evaluating their cloud options as cloud technology continues to develop. Red Hat has been urging patience as it helps its customers navigate through their choices. Its fourth quarter earnings suggest the enterprise cloud market is beginning to trust hybrid and OpenStack cloud options with the assurance of security that Red Hat helps provide.
“Enterprises and service providers are increasingly adopting hybrid cloud infrastructures and open source technologies, which is fueling our growth and positioning Red Hat for the long-term,” said Whitehurst in a statement.
The company made the case that its fourth quarter results indicate the company’s strategy is sound and will continue to pay off with long-term growth. It said the number of deals greater than $1 million in fiscal 2017 grew by over 30 percent annually, and it closed a record number of deals over $20 million, including its first-ever deal of about $100 million, which was signed during the fourth quarter with an un-named telco.
Asked about future opportunities, Whitehurst was particularly sanguine about the prospects of 5G wireless technology.
“We see this as a very significant opportunity for us: 5G and just the increase in the amount of data being communicated will require new infrastructure, and I think it’s pretty safe to say that new infrastructure will be commodity hardware running OpenStack,” Whitehurst said, according to Seeking Alpha.
He added, “One of the reasons we’ve been so excited about the opportunity is just like with Linux, there needs to be an industry standard that every piece of hardware can certify too and in this case every VNF, every virtual network function can certify too. Red Hat is that natural player, we’ve done it before with Linux, we’ve demonstrated we can do it with mission critical workloads; that needs to happen with OpenStack and I think that Red Hat is emerging as that leader. You know, three of our big four deals were eight-figure OpenStack deals, two of those were with telco services providers.”
Following its preceding third quarter report, which included tepid results accompanied by news of the departure of the company’s chief financial officer, Red Hat’s stock was badly dinged, dropping 11 percent. The stock has been recovering steadily since, and following the announcement of its Q4 results late Monday, the company’s stock jumped over 4 percent before the market closed, and it was still on an upwards trajectory as this story was filed. Mid-day on Tuesday, still riding the spike, the company’s stock value was close to $87.
In general, analysts seemed pleased by the fourth quarter, but still want assurance the trends are sustained. This evaluation by Keith Bachman of BMO Capital Markets was by and large typical: “Our late CY2016 cautious stance on Red Hat was based on the view that revenue and billings estimates would stay range-bound. However, emerging technologies, led by strength in OpenShift and OpenStack, are proving to be much stronger than we previously estimated. Moreover, we conclude that we likely have more upside than downside tension. However, to return to our previously bullish stance on the shares, we would need more conviction on the durability of app development and emerging tech growth. Nonetheless, we acknowledge a very strong February quarter.”