Red Hat Sees Red on Cash Flows

Sep.27.06 | About: Red Hat, (RHT)

Over the past couple weeks, the stock price of Red Hat (Nasdaq: RHAT), an open source software provider, has moved from $22 to $26. However, on the news of its second quarter results, the stock price plunged to $22.47 in after-hours trading.

True, there was some good news. Revenues surged 52% to $99.7 million.

However, the fact remains that Red Hat has spent considerable time integrating its acquisition of JBoss. This is certainly reasonable. And, in the end, the deal should be a big boost to growth.

But things took a toll on Red Hat's cash flows, which were $43.9 million. This compares to last year's $45.8 million. For the full-year, cash flows are expected to range from $210 million to $215, which is down from the company’s prior estimate of $225 million to $235 million.

By all accounts, open source should be a growth market for years to come. More importantly, Red Hat is making key strategic decisions to remain a leader in the space. And, while the stock is probably a good long-term value, there is no need to rush in as it looks like the company will grind out the rest of 2006.