Red Hat shares sink after a revenue miss in 2Q and lowered full-year guidance

Red Hat Inc (NYSE:RHT) fell short on revenue in its second-quarter results while it’s lowered full-year guidance weighed down its shares.

The open-source software developer reported earnings of US$0.46 per share on revenue of US$822.75mln compared with US$0.53 EPS on revenue of US$723.36mln in the previous year’s second quarter.

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The North Carolina-based company reported adjusted earnings of US$0.85 per share, topping Wall Street estimates of US$0.82 per share. However, its revenue fell short of analyst expectations of US$829.49mln.

Shares of Red Hat were down more than 4% to US$137 in Wednesday after-hours trading.

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“We are re-affirming our full year growth in constant currency at 16%-17% year-over-year; however, we are adjusting our full year total revenue guidance in dollars by approximately $15 million, solely to account for the change in FX rates,” said CFO Eric Shander in the company’s press release.

For the full year, the company expects revenue between US$3.36bn to US$3.39bn down from its prior guidance of US$ $3.37bn to US$3.410bn.

The company expects third-quarter revenue between US$848mln to US$856mln.

An analyst weighs in

JPMorgan analyst Mark Murphy recently downgraded Red Hat to Neutral from Overweight, lowering the price target to US$150 from US$160.

“Red Hat was growing at a premium to its peers, but due to a few dynamics such as a lower renewals portfolio in FY19 and headwind against middleware growth, it should no longer enjoy a growth premium,” said Murphy, as per a note shared by Benzinga.

JPMorgan is positive on the software developer in the long-term, but the analyst expects its top-line growth to be in the teens for a few quarters, a drop compared with its more than 20% growth in the last four quarters.

Murphy predicts its shares will trade between US$120 and US$180 until headwinds settle.

Story by ProactiveInvestors