Wednesday, December 30, 2009

Red Hat Is It All Out There?

Red Hat (RHT) released results recently and talked extensively about their deferred revenue and how pleased all the executives seem to be. They have a market cap of around $5.9 Billion. Charlie Peters - EVP & CFO reports in the conference call that at the end of the quarter cash and investments were $959 million. This represents 16%of the market cap for a company that trades at around 42 times forward PE. The management says things are going well with the subscription model and they continue to make acquisitions to augment their offering. They just did not offer any compelling vision that would speak to the 42 times forward PE valuation. The street and the management seem to be talking past each other and unless you really understand the sub-text investors will be sheared. This one is not taking any awards for transparency.