Despite the Economic Gloom, Another Home Run for Red Hat

Red Hat reported its third quarter earnings after the close of the stock market today, and the news was rosy, especially given these economic times. The earnings were up nearly 20 percent, although the company did have to contend with unfavorable exchange rates. For the quarter ended November 30th, net income was $24.3 million or 12 cents per share, compared to $20.3 million, or 10 cents per share for last year's third quarter. Revenue grew 22 percent year-over-year to $165.3 million. The profit performance also topped analysts' expectations. Here are some of the details and what this means.

The market sent Red Hat's stock up nearly eight percent in after-hour's trading, and Red Hat's stock has been on a tear in recent weeks. In this post from a few weeks ago, and in this original one, we noted the fact that Red Hat's market capitalization was only slightly above the amount of cash the company has. Its stock price was in the $7.90 range, and we noted that at that price, its status as an independent company might be threatened. Now, Red Hat's share price is over $12--better than a 50 percent increase in just a few weeks.

Throughout this year, the market has been steadily punishing Red Hat's stock even as new CEO Jim Whitehurst has delivered solid results, and bought back the company's shares. The company has shown sterling retention of its top 25 customers.

As noted by Bloomberg, cost-conscious users and IT departments are contributing to the continuing success of this company, and its model of providing fee-based support for free Linux. The strong performance was largely due to solid subscription revenues. “In this budget-constrained environment, IT professionals are adopting open source and more specifically Red Hat to save money and enhance their competitiveness," said Whitehurst, in a statement.

Red Hat, Novell and Sun Microsystems are all public open source companies that have seen their shares pummeled this year. It's good to see the business environment holding steady for Red Hat, and its performance in the third quarter and rapidly recovering share price provide hope that we won't necessarily see these companies get snapped up by much bigger corporate parents.