Red Hat 3Q Profit Meets the Street; Shares Slide

Red Hat (NYSE:RHT) slipped afterhours upon revealing late Tuesday third-quarter earnings that only matched Wall Street estimates, as stronger revenue was unable to sustain rising costs.

The Raleigh, NC-based company posted net income of $26 million, or 13 cents a share, compared with $16.4 million, or 8 cents a share, in the same quarter last year.

Excluding onetime items related to stock compensation and charges from a litigation settlement, the company earned 20 cents a share, meeting average analyst estimates polled by Thomson Reuters.

Revenue for the provider of open source software solutions was $235.6 million, up 21% from $194.35 million a year ago, beating the Street’s view of $227.27 million. The stronger results were driven by an increase in subscriptions.

Red Hat CEO Him Whitehurst attributed the growth to “strong market demand and sales execution, combined with a compelling value proposition,” that led to a 20% gain in organic billings.

“In addition to delivering a compelling value proposition, we continued to drive innovation for our customers’ data center needs,” he said, noting the company in November launched the latest version of its flagship operating system, Red Hat Enterprise Linux 6.

Costs weighed on earnings, up about 34.3% to $39.7 million from $29.6 million a year ago.

Looking ahead, the company said it is making focused investments in growth initiatives, which it said is evidenced in its November acquisition of Makara, a developer of deployment and management solutions for applications in the cloud.

“We are well positioned at the confluence of several hot areas of IT; open source, virtualization and cloud computing,” said Charlie Peters, the company’s chief financial officer.