Red Hat Inc (NYSE:RHT) fell short on revenue in its second-quarter results while it’s lowered full-year guidance weighed down its shares.
The open-source software developer reported earnings of US$0.46 per share on revenue of US$822.75mln compared with US$0.53 EPS on revenue of US$723.36mln in the previous year’s second quarter.
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The North Carolina-based company reported adjusted earnings of US$0.85 per share, topping Wall Street estimates of US$0.82 per share. However, its revenue fell short of analyst expectations of US$829.49mln.
Shares of Red Hat fell in Wednesday after-hours trading and continued their descent the following morning, falling nearly 6% to US$135 in Thursday pre-market trading.
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“We are re-affirming our full year growth in constant currency at 16%-17% year-over-year; however, we are adjusting our full year total revenue guidance in dollars by approximately $15 million, solely to account for the change in FX rates,” said CFO Eric Shander in the company’s press release.
For the full year, the company expects revenue between US$3.36bn to US$3.39bn down from its prior guidance of US$ $3.37bn to US$3.410bn.
The company expects third-quarter revenue between US$848mln to US$856mln.
The analysts weigh in
Oppenheimer analyst Ittai Kidron reiterated an Outperform rating following Red Hat’s second-quarter results, but lowered its price target to US$165 from US$175.
The analyst views the software company as a strong player in the cloud space with a diverse portfolio of assets, but acknowledged that rough waters lie ahead.
“We remain confident in Red Hat's competitive positioning, but acknowledge it may take a couple of quarters to work through these issues and demonstrate more consistent execution/growth,” said Kidron.
With a concerted sales push, the analyst said Red Hat could see progress by fiscal year 2020.
JPMorgan analyst Mark Murphy recently downgraded Red Hat to Neutral from Overweight, lowering the price target to US$150 from US$160.
"Red Hat was growing at a premium to its peers, but due to a few dynamics such as a lower renewals portfolio in FY19 and headwind against middleware growth, it should no longer enjoy a growth premium," said Murphy, as per a note shared by Benzinga.
Similar to Oppenheimer’s view, JPMorgan is positive on the software developer in the long-term. However, the analyst expects its top-line growth to be in the teens for a few quarters, a drop compared with its more than 20% growth in the last four quarters.
Murphy predicts its shares will trade between US$120 and US$180 until headwinds settle.
--Updated with additional analyst commentary, latest share price