I take my hat off to linux’s open-source model
Red Hat Inc (NYSE:RHT) distributes open-source software and services, including the well-known Red Hat Linux operating system. Since its products can be copied and distributed without major restrictions, most of the company´s revenue is derived from support and services. Actually, the company holds over 60% of the Linux server OS market.
Its open-source model, which may seem unprofitable at a first glance, is actually one of its main strengths, since many third party developers continuously work on ameliorating Linux OS, while Red Hat Inc (NYSE:RHT) needs not to make hefty investments. This network effect has helped Red Hat’s Linux beat UNIX OS and other proprietary operating systems, while keeping expenses controlled.
In addition, its model has made it the go-to option for thousands of users worldwide, providing it with an easier entry to the datacenter industry, through other open-source products including storage, virtualization, middleware, and IT management tools.
Although “the evolution of the public cloud will likely be a strong determining factor in the success of Red Hat Inc (NYSE:RHT)‘s strategy [and] those building out their public cloud products such as Microsoft, Google, VMWare, and Amazon have the final say in what software their data centers will use,” I believe that the future bodes well for Red Hat (Morningstar).
Although the firm’s stock trades considerably above industry average valuations, its growth prospects look encouraging. Furthermore, by investing in this firm, you would be supporting developments that might someday be of great use to you or companies in which you hold a stake. I’d say Red Hat Inc (NYSE:RHT) is not a definite Buy, but certainly an option to consider, not only for its expected returns, but for the spillover effect you could be supporting.
All three companies offer compelling growth prospects and plenty of room for expansion, and have proven successful in constantly adapting to the ever-changing tech-segment environment. As such, I’d consider adding all three to your long-term portfolio. However, if I had to choose only one, Intuit Inc. (NASDAQ:INTU) would be my choice based on its scale, competitive advantages, growth prospects and dividend yield.
The article 3 Software Companies For Growth originally appeared on Fool.com and is written by Damian Illia.
Damian Illia has no position in any stocks mentioned. The Motley Fool recommends Informatica and Intuit. The Motley Fool owns shares of Intuit. Damian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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