Red Hat's Massive Opportunity In Hybrid Cloud

Red Hat Inc (NYSE: RHT) has raised its estimate regarding the total addressable market (TAM) for hybrid cloud to $69 million by F2019.

Pacific Crest’s Ben McFadden maintains an Overweight rating on the company, with a price target of $88.

Hybrid Cloud

McFadden mentioned, “Linux continues to take share and emerging businesses are increasing as a growth driver, which we believe can drive both revenue and FCF outperformance over the next few years.”

Red Hat Enterprise Linux has continued to see double digit growth, while the emerging businesses have also been driving growth.

“Management continues to talk about an aspiration to drive toward $5 billion in enterprise software revenue, potentially within the next five years,” McFadden stated.

Related Link: Red Hat Considered "Best Positioned" Software Company By MKM

App Development, Emerging Solutions

Over the past year, Red Hat’s expanded list of emerging solutions and application development has led to an inflection in large deals over $5 million.

The analyst believes the company is well positioned to see this trend continue, with only 5 percent of its top 10,000 customers featuring three or more solutions, as compared to 70 percent of the top 100 customers.

In fact, McFadden pointed out that application development and emerging solutions has reached 19 percent of the subscription revenue.

“Red Hat has the potential for solid free cash flow upside and middle to high-teens growth for many years to come, so we believe RHT shares currently are an excellent opportunity for buyers,” the analyst added.