Red Hat Shares Plunge After-Hours as 3Q Results Miss Estimates; CFO to Exit

Shares of Red Hat (RHT) were tumbling 13.9% to $68.70 in after-hours trading on Wednesday as the open-source software solutions company reported fiscal 2017 third-quarter revenue that missed analysts' expectations and cut its full-year revenue forecast. 

The Raleigh, NC-based company also announced that Frank Calderoni, the company's CFO and executive Vice-President, would step down from his role in late January 2017 to take a CEO position at "another company." Red Hat CEO Jim Whitehurst said that Eric Shander, Red Hat's vice president of finance and accounting, will be appointed as CFO once Calderoni leaves. 

Following Wednesday's market close, Red Hat posted revenue of $615.0 million, which was below Wall Street's projected $618.5 million. The company reported adjusted earnings of 61 cents per share, higher than analysts' estimated 58 cents per share.

"Enterprise and service provider customers continue to adopt a hybrid cloud strategy for developing, deploying and managing the life-cycle of their critical applications," said Whitehurst, Red Hat's CEO. "...In aggregate, customers utilizing our cloud-enabling technologies either on-premise or in the public cloud are spending more with Red Hat than customers who have not yet embraced our cloud-enabling technologies."

Red Hat is largely known for the open-source operating system Linux, as well as for offering free versions of software. The company has also benefited from the shift toward cloud computing and a series of recent acquisitions. 

Subscription revenue for the quarter increased 16% year-over-year to $431 million.  

Despite Whitehurst's optimism toward cloud solutions adoption, the company gave a wary revenue outlook for 2017. Red Hat said it expects sales to be between $2.397 billion and $2.405 billion, down from its prior forecast of between $2.415 billion and $2.435 billion. Wall Street is projecting revenue of $2.42 billion for the year. 

The company raised its adjusted earnings view to be about $2.27 per share, up from its previous outlook of $2.23 to $2.25 per share. Analysts are looking for adjusted earnings of $2.24 per share. 

For the fourth quarter, Red Hat is modeling revenue in the range of $614 million to $622 million, while analysts are predicting $638 million. The company is expecting flat quarter-over-quarter earnings of 61 cents per diluted share, matching Wall Street's expectations. 

Before Wednesday's after-hours move, Red Hat stock had declined about 3.7% year-to-date.

About 2.27 million shares of Red Hat traded hands on Thursday, above the stock's 30-day average volume of 1.23 million shares.

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