Along those lines, while I'm not willing to go "tit-for-tat" as to which software companies are better managed than others, it certainly appears as if Red Hat has begun to steal some meaningful share from its rivals. Before you disagree, consider that the company posted a 3% miss in its "billings" or deferred revenue target in the March quarter, which (then) prompted management to guide down.
However, in the June quarter, Red Hat's billings, which is the metric that indicates the strength of future sales, increased 12% year over year. I don't believe that level of improvement was manufactured out of thin air. The question is if this can continue. On Monday, we are certain to find out. The Street is looking for 33 cents in earnings per share on revenue of $372 million, which represents year-over-year revenue growth of 15.3%.
Although management did issue both revenue and profit outlook that were in line with analysts' expectations, on the basis of Red Hat's sequential improvement I'm expecting the company to beat both estimates. As is often the case, how the stock reacts will be based on how the company guides. With still no clear signs that enterprise spending will be back to robust levels, I expect that management will play it conservatively and not divert too much from consensus estimates.
The good news is Red Hat is no longer just a niche Linux operator. Investors have long feared that despite the company's strong Linux business, Red Hat lacked differentiation in areas such as middleware, which is the software that lies between an operating system and specific software applications. With Open Stack gaining traction and both revenue and earnings trending in the right direction, expensive stock or not, "green" is the only color Red Hat sees.
These realities have prompted investors to sell off the stock this year by as much as 13%. The stock still hasn't entered my value threshold yet, however.
At the time of publication, the author held no position in any of the stocks mentioned
This article was written by an independent contributor, separate from TheStreet's regular news coverage.