NEW YORK (TheStreet) -- Customers around the world are changing their perceptions about open-source technology, making it more mainstream, and open source is driving innovation at enterprise and cloud services giant Red Hat (RHT) , according to its president and chief executive Jim Whitehurst.
Red Hat, the world's largest provider of open-source solutions, reported fiscal third-quarter results Thursday that topped Wall Street's revenue and profit estimates, sending its shares up more than 9% in after-hours trading. In an interview after earnings were released, Whitehurst discussed Red Hat's performance and outlined how the company plans to stay ahead of the competition in its core markets.
This quarter marked Red Hat's 11th-consecutive quarter of mid-to-high teens revenue growth, an impressive performance considering how tight chief information officers have been in terms of corporate spending this year.
When asked whether he feels pressure to keep the streak going, Whitehurst said that he never worries about just one quarter.
Instead, he said the focus on how to best position Red Had to dominate its core market for the next three to five years.
The fact that open source is becoming more widely accepted is important because Red Hat is placing huge bets on OpenStack, a much younger part of its business than its Linux segment. The goal of OpenStack is to bring to market scalable cloud solutions that are feature-rich, yet easy to implement.
Whitehurst isn't too concerned about the growing competitive environment with rivals such as VMware (VMW) and Hewlett-Packard (HPQ) , which recently bought Eucalyptus.
"The more attention competitors bring to OpenStack helps Red Hat because it reinforces the significance of open source," he said.
Whitehurst also talked about Red Hat's new partnership with Cisco (CSCO) , which was formed to bring cloud-ready solutions to enterprises and service provider customers by focusing on OpenStack.
This partnership should help accelerate the adoption rate of OpenStack, he said.
In addition, Whitehurst said that Red Hat has an advantage not only because of its long history of open-source expertise but because he thinks few competitors actually understand what OpenStack is.
Just like Linux two decades ago, many proclaimed themselves experts, but only a handful survived to prove it, he said.
All told, Red Hat said that fiscal third-quarter revenue grew 15% from a year earlier to $456 million. And when adjusting for currency fluctuations, revenue was even better, climbing 18%.
Analysts were looking for revenue of $451 million, according to Thomson Reuters.
Net income, after adjusting for stock compensation and amortization expenses, totaled $79 million, or 42 cents a share, beating analyst estimates of 40 cents.
During a conference call with analysts, Whitehurst credited “continued strong demand and excellent sales execution” for his company's performance.
Equally, and perhaps more impressive, subscription revenue for the quarter was $395 million, up 15% from a year earlier, while deferred revenue balance rose 16%.
These numbers suggest how sticky Red Hat services have gotten. The double-digit growth also underscores the stability of future revenue.
One-third of the company’s top 30 contracts called for five or more Red Hat products, Whitehurst said.
This means that the company is becoming more diversified in its business and not relying on just one product to drive sales.
Red Hat's results, which include setting new quarterly records for the number of deals over $5 million and $10 million, suggests it will be tough for competitors to dethrone the Linux leader from its mission to control open-source technologies.
At the time of publication, the author held no position in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
TheStreet Ratings team rates RED HAT INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate RED HAT INC (RHT) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, increase in net income, robust revenue growth, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value."
You can view the full analysis from the report here: RHT Ratings Report