Shares of Red Hat Inc (RHT.N), the world's largest commercial distributor of the Linux operating system, fell 9 percent in early trade after the company's quarterly billings growth disappointed analysts.
On Wednesday, the company said a weak economy hurt billings in the first quarter and is likely to impact growth going forward.
Red Hat's first-quarter billings growth of 16 percent was below the 20 percent analysts had estimated, mainly due to foreign currency headwinds, Susquehanna Financial Group analyst J. Derrick Wood wrote in a note to clients.
Wood cut his price target on the stock to $65 from $67.
Red Hat's Linux operating system is a major competitor to Microsoft Corp's (MSFT.O) Windows in corporate markets, especially on servers.
"The business momentum of Red Hat moderated in the quarter ... This was slower than the growth rates in the previous five quarters," J.P. Morgan analyst John DiFucci said.
While the large deal metrics were positive and Southern Europe was surprisingly strong in the quarter, a slow down in global IT spending is still a matter of concern, he said.
Stifel Nicolaus analyst Brad Reback cut his price target on the stock by $5 to $65 and said the company's growing size seemed to be impacting order flows.
"As we have seen with other $1 billion-plus software vendors, Red Hat's billings appear to be getting a bit more seasonally skewed toward the back-half of the fiscal year due to growing contract complexity (more products) and expanding deal sizes," he said.
The strengthening dollar also led the company to trim its full-year revenue forecast to between $1.32 billion and $1.34 billion, from $1.34 billion to $1.36 billion. Red Hat gets about 40 percent of its revenue from outside the United States.
However, analysts remain confident of the company's long-term performance as they see demand trends remaining strong.
"While the stock may correct near term, we expect that the feedback from customer and vendor checks at Red Hat's annual customer event in Boston next week will show that demand in the core Red Hat Enterprise Linux business remains strong," BMO Capital Market's Karl Keirstead said.
Shares of the Raleigh, North Carolina-based company, which have gained 11.5 percent in the last three months, were trading down 6 percent at $53.25 in early trade on Thursday on the New York Stock Exchange.
(Reporting by Vidya P L Nathan and Sruthi Ramakrishnan in Bangalore; Editing by Sreejiraj Eluvangal)