International Business Machines Corp. (IBM), Microsoft Corporation (MSFT): Why Did Wall Street Let Red Hat, Inc. (RHT) Off the Hook?

The (not so) secret sauce
The company thrives in good times and in bad, thanks to the unique value of its product portfolio.

In times of crisis, budget-crunched IT managers can take a look at Red Hat’s low product cost to keep their operations running smoothly without a whole lot of monetary support. Red Hat Enterprise Linux is a solid alternative to full-fledged Unix implementations from International Business Machines Corp. (NYSE:IBM) or Oracle Corporation (NASDAQ:ORCL) . The company also wins over many Microsoft Corporation (NASDAQ:MSFT) Windows customers under these circumstances.

And it’s not just the operating system that appeals to tight budgets: Red Hat also sells high-quality middleware products, like the Jboss toolkit, which gets bundled with about 20% of Red Hat’s platform sales right now. That’s a serious contender to replace International Business Machines’s WebSphere, or Oracle’s WebLogic software in many cases. But Jboss subscriptions typically cost less than 10% of a WebSphere or WebLogic license.

The Red Hat appeal in hard times should be obvious: Less pressure on the pocketbook, sir. When CFO Charles Peters said that Red Hat’s middleware sales were “strong despite the challenging global economic environment,” I think he used the wrong word. Red Hat should never be scared of economic downturns.

What’s next?
For the next quarter, management again set the bar below current Street expectations. That’s alright, because those long contracts play into coming quarters, as well. In fact, many of the deals Red Hat just closed will stick around for years to come.

International Business Machines Corp. (NYSE:IBM) and Oracle have beaten the market over the last five years with gains of 85% and 65%, respectively. Microsoft Corporation (NASDAQ:MSFT) has traded sideways over the same period. Meanwhile, Red Hat has crushed them all by nearly tripling shareholder value.

The article Why Did Wall Street Let Red Hat Off the Hook? originally appeared on Fool.com.

Fool contributor Anders Bylund holds no position in any company mentioned. Check out Anders’ bio and holdings, or follow him on Twitter and Google+. The Motley Fool owns shares of Oracle and IBM. Motley Fool newsletter services have recommended buying shares of Microsoft.

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