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Linux software maker Red Hat reported profit ahead of Street projections on Wednesday , helped by cost cuts and a stock buyback, sending shares up 8 percent.
Red Hat (NYSE: RHT) CEO Jim Whitehurst said that business sentiment has improved, with customers telling him they feel the economy is in a ordinary recession, rather than a depression.
“I don’t think people are quite as scared as they were a couple months ago,” he said in an interview. “A couple months ago people were really worried we were falling off a cliff. It has stabilized since then.”
He issued forecasts for the current quarter and full fiscal year that were generally in line with Wall Street projections.
Profit, excluding items, of 22 cents per share, for its fiscal fourth quarter ended Feb. 28, beat analysts’ average forecast of 20 cents, according to Reuters Estimates.
Revenue rose 18 percent to $166 million, versus the average forecast of $167 million, as the company persuaded existing customers to sign bigger deals when they renewed subscriptions on service contracts.
Red Hat — whose rivals include Novell (NASDAQ: NOVL) and Microsoft (NASDAQ: MSFT) — makes money by offering services such as upgrades, help-desk support and bug fixes to open-source Linux software that is also available at no charge.
The software maker has started a “free-to-pay” marketing campaign to persuade businesses that they would save money by subscribing to its services because they would not have to hire as many Linux programmers.
Whitehurst said that the company signed up many customers through that program during the quarter, including one multimillion-dollar contract.
Red Hat also managed to boost revenue by persuading existing customers to expand the size of their contracts. The value of the 25 largest renewal subscriptions signed during the quarter was 32 percent higher than the original deals as customers expanded capacity and added new features.
Red Hat’s outlook
Red Hat forecast that full-year revenue will grow between 10 percent and 13 percent this year to $720 million to $735 million. Analysts were expecting revenue of $735 million.
It projected full-year profit, excluding items, of 58 cents to 62 cents, versus an analyst forecast of 59 cents.
The company also forecast that it will report first-quarter profit, excluding items, of 13 cents to 14 cents, on revenue of $171 million to $173 million. Analysts were expecting profit of 13.5 cents on revenue of $172 million.
The company reported fourth-quarter net income fell to $16 million, or 8 cents per share, from $23 million, or 10 cents per share, a year earlier, when it had more shares outstanding.
Shares of the Raleigh, North Carolina-based company rose 8 percent to $16.22 in extended trading, from their New York Stock Exchange close of $15.00.
