Red Hat, Inc.New Billings Highlight StrongQ4, Guidance Conservative $RHT

Conclusion. Strong renewals, free-to-paid migrations, solid contributions for the gov't/telco verticals, and an improving JBoss business enabled RHT's 4Q billings growth to outpace server growth. We estimate 18% total billings growth represents new billings up 25-30% YoY. A below cons. guide for revs., EPS and cash flow for FY11 is likely conservative given: 1) strength in server growth supporting top-line/billings growth and 2) an op. margin guide for 1Q11 which is ~100 bps ahead of FY10 levels. That said, the stock trading at 19X CY11 FCF looks expensive against the company's cash flow guidance looking for high-single digit growth, and the results are not likely a catalyst.





RHT