Red Hat, Inc. (NYSE:RHT) blew Oracle out of the water with the reporting of its’ fourth-quarter earnings. Red Hat has now logged 44 consecutive quarters of revenue growth, but missed the lofty expectations of analysts. The company had a record setting year of 17% revenue growth, generated largely by new customer subscriptions and a mysterious Health Care contract that the company says they were able to convert from a proprietary provider…maybe Oracle?
Red Hat, Inc. (NYSE:RHT) saw significant growth come from the JBoss Enterprise Middleware segment of their product portfolio, and the company now serves 90% of the Fortune 500 companies. Company executives claim that customers are buying into their pay as you go subscription model in order to avoid substantial initial cash outlays to satisfy their IT needs, as this can become a significant line item expense for them. In addition, Red Hat noted that customers are showing willingness to purchase more expensive products as a result of the flexible payment options.
As for sequestration, whichOracle Corporation (NASDAQ:ORCL) partially blamed for their earnings miss, Red Hat, Inc. (NYSE:RHT) disclosed that federal spending on IT services was slower as a result; but the company did not experience any significant headwinds in revenue generation. The company does not expect to lose any contracts with the government, but growth in this segment could slow in the future.
Red Hat anticipates significant revenue generation from OpenStack, but does not expect material revenue inflow from such projects in the near term as the technology is still rather new to the market. In stark contrast to Oracle Corporation (NASDAQ:ORCL), Red Hat, Inc. (NYSE:RHT) has made a rather significant bet on open source cloud computing, and it appears that customers are in favor of the company’s decision to do so.
As mentioned earlier, Red Hat, Inc. (NYSE:RHT) was able to convert a large Health Care company from a proprietary platform to their OpenStack. This was the largest contract of the quarter, and speaks volumes for the excitement the cloud community is feeling regarding open source platforms.
To the cloud and beyond
Red Hat is the second largest contributor to the OpenStack community, outpaced only by Rackspace Hosting, Inc. (NYSE:RAX). Rackspace is a cloud provider that has built its entire business model around the development and proliferation of the OpenStack cloud platform. Although the company missed analyst expectations last quarter, Red Hat’s recent earnings success tells me that there is still great opportunity in the open source cloud industry, in which Rackspace has established a firm foothold.
Rackspace is one large contract away from giving proprietary cloud competitors a run for their money, and is definitely a company to follow as OpenStack takes hold in the market place. Investors looking to capitalize on the cloud revolution would be wise to avoid companies that are slow to adopt innovative changes put on by the likes of Rackspace and Red Hat, Inc. (NYSE:RHT), as the future of IT clearly lies in the Cloud.
The article Red Hat, Oracle, and the Evolution of OpenStack originally appeared on Fool.com and is written by Brian Jordan.
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