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Red Hat Earnings Disappoint

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Red Hat (NYSE: RHT), the open source software solutions provider, saw its stock drop 7% after reporting disappointing earnings and revenue forecast.

The company reported a very disappointing second-quarter outlook and, though it pulled back a little from the 7% drop, it still fell 5% to $53.77.

Red Hat said that new software bookings are not growing as fast as the company expected. Tom Ernst Jr. of Deutsche Bank said that the slowdown is a result of a number of factors, ranging from macro weakness, currency impact, tough comps six quarters after the RHEL6 release and slowing services revenues.

John DiFucci of J.P. Morgan said, "Our calculations indicate that the business momentum of Red Hat moderated in the quarter, as subscription billings (excluding the effect of billings greater than a year) grew 17% cc (compared to 16% reported). This was slower than the growth rates in the previous five quarters, and though it was against a relatively tough comp from a year-ago, it was not any tougher than that for the F4Q12, and it will not get any easier over the next 3 quarters."

For the second quarter, Red Hat said that it expects to earn between 28 cents and 29 cents per share on between $320 million and $322 million in revenue for the business period. That fell well short of the analyst estimate, which had forecast earnings of 29 cents per share on $331 million in revenue for the quarter.

Due to the strengthening dollar, and as a result of the fact that it gets about 40% of its revenue from outside of the U.S., Red Hat also had to cuts its full-year revenue forecast to between $1.32 billion and $1.34 billion, from $1.34 billion and $1.36 billion.

For the first quarter, Red Hat reported a profit of $37.5 million on revenue of $314.7 million.

The news came on the same day that it was revealed that Red Hat is adding 1,000 employees to its payroll in 2012, at a rate of 250 people per quarter. The company said that it wants to grow from 4,000 to 5,000 employees by the year's end to match its 20% growth in business.

On Friday morning, Red Hat is trading at about $53, down roughly 6.1%.

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Latest Ratings for RHT

DateFirmActionFromTo
Dec 2014Stifel NicolausMaintainsBuy
Dec 2014Bank of AmericaMaintainsBuy
Dec 2014Morgan StanleyMaintainsOverweight

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