VMware, Inc. (VMW): Did Oracle Corporation (ORCL) Just Signal an Earnings Miss for Red Hat, Inc. (RHT)?

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In terms of profitability, the company expects non-GAAP earnings to arrive in the range of $0.29 to $0.30 per share, with operating margin of 24.0%. The fact that there have been no revisions to guidance over the past 60 days means that management expects to report good numbers, or at the very least, numbers that are in line with expectations. But will this be good enough? Besides, Oracle Corporation (NASDAQ:ORCL) didn’t revise guidance, either.

Then again, even if Red Hat, Inc. (NYSE:RHT) were to report in-line results, the valuation is still too high. The stock is priced for a company that beats estimates and raises guidance. Though I have been bearish, there are several factors that are working in Red Hat’s favor. The company’s revenue pipeline, also known as deferred revenue, has remained strong.

In the third quarter, management reported having $987.7 million in deferred revenue. This means that the company is able to offset any near-term revenue weakness with the strength of subscription renewals. This is what the Street sees and is presumed in Red Hat, Inc. (NYSE:RHT)’s valuation. I still disagree.

Things to consider
Valuation concerns aside, I’m willing to give Red Hat the credit it deserves for having built a strong business model. I do wonder, however, if Red Hat can duplicate its Linux success into other areas, because despite VMware, Inc. (NYSE:VMW)’s recent weakness in virtualization, Red Hat’s management has failed to effectively address this market. Meanwhile, Citrix Systems, Inc. (NASDAQ:CTXS) has been gaining share at VMware, Inc. (NYSE:VMW)’s expense — growing product and license revenue 17% .

What’s more, Citrix’s acquisition of Zenprise shows how badly Citrix wants to differentiate itself. Although Red Hat, Inc. (NYSE:RHT)’s Hypervisor has gotten some good reviews, I don’t believe management has invested enough to beat VMware, Inc. (NYSE:VMW)’s vSphere or Citrix’s XenDesktop. All of that said, the good news for Red Hat is that growth has not slowed. But there’s a first time for everything, and this quarter might be that time.

The article Did Oracle Just Signal an Earnings Miss for Red Hat? originally appeared on Fool.com and is written by Richard Saintvilus.

Fool contributor Richard Saintvilus has no position in any stocks mentioned. The Motley Fool recommends VMware. The Motley Fool owns shares of Microsoft, Oracle, and VMware.

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