Closer Look Cuts Down Red Hat

Shares fall after analysts cite weak cash flow.
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Although

Red Hat's

(RHT) - Get Report

first-quarter results were on target Wednesday, investors evidently didn't like what they saw under the hood.

Shares were recently off $1.31, or 5.4%, to $22.88 on heavy volume Thursday afternoon.

In a research note published Thursday, Goldman Sachs analyst Sarah Friar pointed to decelerating billing, lower deferred revenue than in prior quarters and cash flow from operations down 4% year over year as troubling signs.

She questioned whether the Raleigh, N.C.-based Linux software maker will convince the market it can provide IT infrastructure beyond the operating system. Red Hat is an investment banking client of Goldman, which makes a market in the stock.

On a conference call late Wednesday, Red Hat President Charlie Peters attempted to explain away lower growth in deferred revenue. "When revenue accelerates very rapidly, it makes deferred revenue

growth look smaller."

He said billings were $143 million. "Don't get too concerned about quarterly billings and revenue," Peters said.

Cash flow from operations, excluding items, was $52 million, down $2 million year on year.