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Rackspace Profits Despite Hosting Slowdown Fears

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Rackspace has posted impressive growth figures but that doesn’t impress investors

Rackspace has recorded impressive growth and profits, as the cloud uptake continues to pay off for the hosting firm.

However Wall Street continued its current bear-like trend to the tech industry, and reacted unfavourably to the results, which were lower than some had hoped.

Impressive Growth

For the period ending 31 December, the San Antonio, Texas-based company posted a net profit of $29.9m (£19.2m), a rise of 10 percent from the previous quarter, and up 19 percent from the year ago fourth quarter of $25m (£16m).

This growth also translated across to the fourth quarter revenues with Rackspace posting sales of $353 million (£227m), up 5 percent from the previous quarter and 25 percent from the fourth quarter of 2011 when it recorded sales of $283m (£181m).

rackspacetopThe good results were also reflected in the year-end figures, with a full year net profit of $105.4m (£67m), up from $76.4m (£49m) in the previous year. Revenues likewise grew to $1.31bn (£840m) compared to $1bn (£640m) for 2011.

The financial results clearly demonstrated impressive growth for Rackspace in the past year, and the company also revealed that its total server count had increased to 90,524, up from 89,051 servers at the end of the previous quarter, and total customers had increased to 205,538, up from 197,635 at the end of the previous quarter.

“We are very pleased with the financial results we have delivered in 2012,” said Karl Pichler, chief financial officer. “Even more importantly, we are excited about the growth opportunities that our new set of open cloud products will provide us in the future.”

Yet despite the positive growth, analysts and Wall Street reacted negatively to the results, because the growth was not as big as had been predicted, with some inferring that there is slowdown in web hosting.

“Clearly, growth is slowing. That’s probably the primary driver as to why the stock is off so much,” Stephens Inc analyst Barry McCarver was quoted as saying by Reuters.

Shares in the company on the New York Stock Exchange closed $74.98 (£47.80) but dipped as low as $73 (£46) during afternoon trading on Tuesday. It comes after the stock gained about 38 percent in the last six months.

The share price reaction comes amid a general negative mood on Wall Street to some tech giants, despite positive results from the likes of Apple and Google.

Enterprise Cloud

Traditionally, most of Rackspace’s customer base has been in the SMB sector.

However with the growing enterprise adoption of the cloud, the company is hoping that its Rackspace Cloud will close the gap with larger competitors such as Amazon Web Services. Its OpenStack-based cloud services should also help it compete in this space.

OpenStack was initiated by Rackspace and NASA in July 2010 as an open source project. The community has blossomed, and in September 2012 the OpenStack Foundation was officially launched to promote the development and adoption of the open-source OpenStack cloud software.

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