With earnings season bearing down on us, it’s time again for me to get ready for the avalanche of earnings that will ensue.. and I begin with a couple earnings reports posted after the market close earlier today in two outstanding companies. Redhat (RHAT) and Resources Connections (RECN).
Red Hat (RHAT) is a company that saw its stock soar in 2003 as open source software caught fire in the corporate world, but the party didn’t last. The stock fell off a cliff in ’04, dropping more than 50%. It’s been a different story in ’05, climbing more than 50% since June. The climb should continue with force tomorrow as the company reported earnings and sales that beat analyst estimates. The CEO said the company is improving margins by continuing to provide software through subscription/download services and expanding market share through overseas markets. Earnings came in at .09/share, beating estimates by .02/share, while sales came in at 65.7 milion. Both earnings and sales increased by 42% from the year ago quarter. The stock is up nearly 12% in after market trading.
Resources Connection (RECN), a provider of services to companies that enable them to better comply with Sarbanes-Oxley continues to post outstanding, consistent results by posting earnings and sales growth of 30% over the year ago period after the bell today, which beat anaylst estimates. However it doesn’t appear the stock will spike like it did after the last earnings report in July in which the company surprised by a wide margin. The chart does look outstanding. After running up from a large V like base to new highs in July, the stock has spent a few months consolidating in a nice, quiet base, which it broke out from on Monday. The stock is trading close to flat after hours, but is worth keeping an eye on throughout the trading day tomorrow.
** Research in Motion (RIMM) also posted after the bell and investors were not impressed – weakening subscriber growth and rising costs were believed to the culprits in the latest report. The stock is down nearly 4% in after hours trading.
Redhat is doing a good job with enterprise sales. The product is solid and the subscription model is absolutely the key. Redhat has moved “up market” and will continue to increase sales.
I don’t have any familiarity with Red Hat products specifically, but having been involved in few web projects over the last couple years I know that open source is far superior in terms of cost and flexibility.. and often times support for internet businesses. I remember when putting together my investing membership site, I had originally put it up on Windows IIS servers. Well, the problem with that is that the best software applications for customer management solutions all ran on Linux servers. I soon realized how limiting hosting a website on a Windows server can be for an ecommerce company. The options available to someone running a site on Linux vs. running a site on Windows IIS are far greater.
As far as blogs go, open source WordPress is rapidly gaining in popularity at the expense of proprietary solutions from Typepad and Blogger. Hundreds of programmers working for free to improve upon a product is a powerful force.
Red Hat blends the advantages of open source and proprietary software, while cutting costs using a subscription model which I believe Microsoft has been wanting and probably will do in the future. It will be interesting to see if Red Hat can make inroads into the desktop market using its subscription model. It seems that up until this point that initiative has failed, despite their success at the corporate level.