Red Hat breaks record for an open source company by crossing $2 billion barrier for the first time

Red Hat has just become the world’s first open source company to reach $2 billion annual revenue threshold, reporting fourth-quarter revenues of $544 million. Only four years ago, Red Hat had become the first Linux company to cross the $1 billion mark.

Open-source software like Linux allows the developers to access the basic source code and customize it if need be. That process frowned upon in the proprietary software world where source code is a closely guarded secret.

Red Hat reported after the markets closed Tuesday that revenue for the quarter that ended February 29 increased 17 percent to $544 million compared with a year ago.

Subscription revenue hit $480 million (£338m), up 18 percent year-over-year, accounting for around 88 percent of Red Hat’s total revenue. The growth in subscription revenues was seen by analysts as a particularly encouraging trend, indicating that Red Hat’s business is stabilizing and gaining more predictability.

Red Hat CEO Jim Whitehurst said increased adoption of Red Hat’s hybrid cloud and open source technologies were chiefly responsible for the growth. He added that Red Hat closed the year with a record backlog, which Abhey Lamba of Mizuho Securities told The Wall Street Journal “is a good indication of its growing strategic importance.”

Correspondingly, subscription revenue from infrastructure-related products grew 15 percent to $391 million in the quarter. Application development-related subscriptions grew an eye-popping 38 percent. Adjusting for currency fluctuations, the gains were even greater.

Also, Red Hat’s earnings were helped along by its cloud offerings as businesses switch spend more on cloud deployments, particularly as Red Hat Enterprise Linux can work with Amazon, Microsoft Azure, and Google cloud platforms.

“The fourth quarter marked our 56th consecutive quarter of revenue growth, contributing to Red Hat’s first fiscal year crossing $2 billion in total revenue,” said Whitehurst.

Also, full fiscal year Application Development-related and other emerging technologies subscription revenue hit $323 million (£227m), up 37 percent year-over-year or 46 percent in constant currency.

“Our emerging cloud technologies are also gaining traction in our top deals, including a multi-million dollar win for OpenStack that we expect will be one of the largest installs of Openstack once it’s fully implemented,” said Whitehurt on the earnings call yesterday.

“The top vertical for the quarter was telecommunications, where we closed a number of deals with several global telecommunications providers.”

Whitehurst is expecting Red Hat’s fiscal 2017 to be “another year of significant revenue growth with new customer adoption and further expansion with existing ones.”

Looking ahead for its 2016 FY Red Hat expects to see between $2.380 billion to $2.420 billion. At this rate, Red Hat should easily become the first $3 billion open-source company.