Earnings Preview: Red Hat

Red Hat (RHT) is expected to report Q3 earnings after the close Monday Dec. 22, with a conference call scheduled for 5:00 pm ET.

Guidance

The consensus estimate is 18c for EPS and $166.40M for revenue, according to First Call.

Analyst Views

Thomas Weisel previewed the quarter expecting revenue of $162.5M, up 20% y/y, but below consensus, and guidance for $169M to $171M as they estimate currency headwinds negatively impacted the quarter by about $6M. In early October, CFO Charlie Peters said that if the sudden decline in major European currencies was sustained, the company would probably miss guidance given on September 24. Weisel notes that the average exchange rates for the quarter were 8%-9% below rates on September 24. Weisel's billings estimate of $209.7M, up 22.5% y/y, assumes subscriptions billings growth of 18%, versus 25% in Q2. Weisel's EPS estimate of 17c is in line with consensus. The firm's checks continue to indicate the larger deals are facing lengthening sales cycles, though deals continue to be made.

On November 17, the company announced that it had increased its authorization to repurchase common stock to $250M. Back in its Q2 10Q, filed on October 10, the company disclosed that during October it completed $30M of its existing stock repurchase authorization, leaving $145M remaining. It is unclear how much, if any, common stock was repurchased between October 10 and November 17, but investors expect an update on the earnings call.

Other issues to watch for on the earnings call include: forward guidance, commentary on the capex environment, and competition.