Motley Fool: Red Hat's Numbers Get a Boost

"Linux-based software vendor Red Hat (Nasdaq: RHAT) announced positive fourth-quarter results after the market's close yesterday and that it expects to reach profitability in Q1, a full quarter ahead of expectations. At first sight, the announcement looks like a winner, but it's clear Red Hat beat estimates by cutting costs and with the help of an acquisition. For a high-growth software company, more profits on lower revenues gives little reason for excitement."

"Adjusting for onetime items, Red Hat reported a loss of $600,000, or breakeven, compared to a loss of $5.6 million, or $0.04 per share, in the year-ago period. The Street expected a loss of $0.01 per share. Revenues more than doubled in the year-over-year period, to $27 million. But the top-line results included $5.5 million from its recent acquisition of consulting firm Planning Technologies. Without that contribution, Red Hat would have posted a loss of $0.05 per share."

"In addition to the acquisition, Red Hat beat estimates by cutting expenses. The company cut back its research & development expenditures, for example, potentially jeopardizing future growth. R&D is an investment that helps companies develop new technologies that maintain competitive advantage. This is particularly important in high-tech industries, where the rapid pace of technological change breeds product obsolescence."

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