Red Hat-A primer in how not to paint a still life
Red Hat (RHT) reported the results of its fiscal Q3 Wednesday evening. The balance of the next few paragraphs may be the only non-controversial components of this article. Just for the record, reported revenues were up 18% but still missed the consensus by 0.5%. Earnings were $.61; $.03 above the consensus. The CFO, highly regarded industry veteran Frank Calderoni, announced his resignation to take a position as CEO of another company at the end of January. His departure is a loss for Red Hat and inevitably has led to an investor loss of confidence reflected in the share price battering today.
The share price fall was primarily a reaction to the company's 13% growth in calculated bookings which had grown by 19% and 16% the prior two quarters. Much of the balance of this article is related to an analysis of what happened with the bookings metric. I think that my conclusion is that the miss was far below what the share price reaction reflects. The subject occupied essentially all of the conference call and management was unable to overcome analyst skepticism and to an extent was unable to even make its point given the …chagrin, perhaps that analysts felt about the miss. It might be nice if I could write about the specifics of the business-but in this case I think that readers might want another perspective as to what are the relevant factors to consider in evaluating the share price earthquake. And that has all to do about bookings.
Operating cash flow (CFFO) declined by 8% year on year. The decline in CFFO was a product of both balance sheet items and a smaller increase in deferred revenues. Overall, however, deferred revenues grew 15% year on year.
