The company’s share price dropped below $20 for the first time since October 2005 and the company’s share price targets were cut by four investment analysts after compensation and tax issues hit the company’s net income and its predicted revenue for the third quarter fell below expectations.

Raleigh, North Carolina-based Red Hat posted revenue of $99.7m for its second quarter ended August 31, up 52% from $65.7m the previous year, with subscription revenue up 56% from the previous year, with recent acquisition JBoss contributing $7m from its open source middleware.

That was at the top of the company’s previous guidance, but the problem was that tax and compensation charges pushed operating expenses up from $42.2m to $73.8m, resulting in net income of $11.0m, down from $16.7m a year ago.

Red Hat’s chief technology officer, Charlie Peters, maintained that the two net income figures were not directly comparable due to differences in the accounting for taxes and stock compensation. Without these differences, the company’s non-GAAP net income would have been $23.7m, or $0.11 per share.

Looking forward, the company is predicting that it will break the $100m quarterly revenue barrier in the third quarter with revenue of between $103.5m and $105m, slightly below the $105.7m predicted by First Call.

That prompted the price slide, despite Peters’ best efforts to quell concerns. The good news is the pipeline is strong and the outlook remains solid, he said. We believe the second quarter will be the low point of the year for cash flow and profitability.

He said three specific issues hit the company’s billings in the quarter, including the training of sales staff on the JBoss stack, a change of sales structure in Asia Pacific, and a higher proportion of three-year deals billed one year at a time.

Although this training came at the expense of valuable selling time in Q2, we believe it was necessary and will produce returns in coming quarters, he said.