Editor’s note: Red Hat’s latest revenue projections fell below Wall Street expectations, sparking an 8 percent drop in Red Hat (NYSE: RHT) shares in after-hours trading Monday. But Elizabeth Hedstrom Henlin, an analyst at Technology Business Research, sees reasons for optimism.
HAMPTON, N.H. – Sustained double digit revenue growth signals Red Hat’s success in increasing its enterprise footprint.
With 17% year to year growth in total revenue as well as 18% year to year growth in subscription revenue in current year 3Q13, Red Hat continues to deliver on its “land and expand” sales and portfolio strategies as a path to footprint and revenue gains.
New product releases in the quarter including Red Hat Enterprise Linux OpenStack and Red Hat Cloud Infrastructure tie Red Hat’s newer market initiatives back to core Linux and middleware platforms, creating integrations that Red Hat sales can readily monetize with current customers.
With Red Hat’s top 30 deals for the quarter all seven digits and 40% of those involving cross-sales, Red Hat is building its enterprise profile atop comprehensive customer contracts.
The extent to which Red Hat can create full portfolio momentum in vertical customer conversations, a priority of Red Hat executives, will further increase the company’s competitive market profile and appeal with new customers.
A focus on growing contract value through portfolio integration will solidify Red Hat’s hold on its install base, improving profitability and competitive traction.
Renewal rates for Red Hat, with top 25 accounts not only renewing in full but at 120% of previous contract value, illustrate the revenue potential for Red Hat in further increasing share of wallet within its install base.
Moreover, executives’ prominent references to seven digit deals and their importance in quarterly performance underscores the degree to which Red Hat will expand current sales strategies to include large enterprise high dollar contracts moving forward.
TBR believes Red Hat is positioned to monetize newer portfolios more rapidly in the balance of CY13, including cloud management and storage (as shown by Red Hat closing its first seven digit storage deal in CY 3Q13). The rising maturity of these newer portfolios demonstrates the degree to which Red Hat has successfully interwoven its growth initiatives into core Linux and middleware value propositions.
An integrated end-to-end sales narrative not only eases Red Hat’s path to “land and expand” revenue and profit growth but positions Red Hat to compete more effectively with enterprise software leaders including Oracle and Microsoft.
(C) TBR
