In results released after the markets closed Thursday, the Raleigh, N.C.-based software maker said billings for the first quarter were up 11% to $449 million. That was 2% shy of analysts' consensus of 13%, according to Bloomberg, which tracks this data.
The consensus contained "a very broad spread of estimates" from analysts, Red Hat Chief Financial Officer Charlie Peters said in response to questions about the company's billings on a conference call Thursday.
Meanwhile, deferred revenue balance -- revenue the company is expecting but has not yet collected from clients -- grew 13% year over year to $1.44 billion. Analysts also indicated that the company's operations overseas have been hurt by a strong U.S. dollar.
Shares of Red Hat were higher in early Friday trading, gaining 2.2% to $80.23, despite the concerns from Wall Street. Year-to-date, shares have gained 13.5%, broadly outpacing both the Nasdaq (QQQ) and the S&P 500 (SPY).
Despite the concerns about billings, many analysts were upbeat on the company's long-term outlook.
Red Hat reported earnings of an adjusted 44 cents per share on revenue of $481 million, beating a Thomson Reuters survey of analysts that predicted earnings of 41 cents per share on revenue of $472.59 million.
That represented a 3.6% increase over revenue from the fourth quarter of 2014, which was $464 million, and a 14% increase from the same quarter a year ago.
The company attributed the results to increasing demand for its open-source and cloud-based software. Revenue from subscription-based software purchases was up 14% over a year ago, the company said.
Despite worries about billings and foreign exchange, analysts mostly maintained or upgraded their ratings and price targets, with several predicting that the company will continue to outpace its competitors, such as VMware (VMW) and Oracle (ORCL). That dominance, they argued, will make a position in Red Hat a good investment in the long term.
Here's what a few had to say.
Credit Suisse analyst Sitikantha Panigrahi (Outperform, $84 price target)
"Red Hat's Q1 results reinforces our thesis that the continued momentum of RHEL, coupled with growing adoption of open source in enterprises, has enabled Red Hat to increasingly upsell its emerging products. In the long term, we believe that Red Hat is well positioned to benefit from the growing adoption of OpenStack and the cloud computing trend. Therefore, we reiterate our Outperform rating and raise our target price to $84 from $78."
Jefferies analysts John DiFucci and Brad Zelnick (Hold, $72 price target)
"F1Q headline numbers were largely in line or better than expectations, though deferred revenue was light. However, our calculation of new subscription ACV was flattish from a year ago, though it was against a difficult comp. F1Q results also benefited from a one-time $5M benefit to subscription revenue that was likely not in prior guidance. Guidance was a bit below expectations on the bottom line for F2Q, while it was left intact for the year."