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Open cloud provider Rackspace (NYSE:RAX) reports quarter ending December 2012 earnings on Tuesday, February 12, after market close. CEO Lanham Napier is expected to deliver investors another record quarter of revenues and earnings per share. However, the year-over-year growth rates for both are slowing.

The YoY growth rate for total revenues has steadily slowed for the past 4 quarters and is expected to further slow for the quarter ending December 2012. Though expected to be an enviable +26%, growth peaked at just above +32% at the quarter ending September 2011. The 9-quarter average has been an excellent +29%. Last quarter was +27%.

Estimated QE December 2012 Total Revenues (GAAP)
Analyst Estimates: $355.42M avg, $351.24M low, $360.00M high, 18 analysts
Prior Quarter: $335.99M = +6% QoQ
Prior Year: $283.26M = +26% YoY
Management Outlook: none provided

The YoY growth rate for GAAP earnings per share has steadily slowed for the past 3 quarters and is expected to further slow for the quarter ending December 2012. Though expected to be a solid +22%, growth peaked at an astronomical +80% at the quarter ending December 2011. The 9-quarter average has been a bear busting +53%. Last quarter was +36%.

Estimated QE December 2012 Earnings per Share (GAAP)
Analyst Estimates: $0.22 avg, $0.19 low, $0.25 high, 20 analysts
Prior Quarter: $0.19 = +16% QoQ
Prior Year: $0.18 = +22% YoY
Management Outlook: none provided

The earnings per share have continued upwards, driving RAX stock higher. Rackspace has been on a long-term bull run since the market bottom in March 2009. The fundamentals have been excellent for total revenues, operating income, net income, cash flow per share, and earnings per share. Gross, operating, and net margins have slowly up-trended to stay above historical averages. Customers, servers deployed, and employees have steadily increased and the related productivity ratios have been maintained (e.g. revenues per server). Financial position is strong and liquidity has improved.

Rackspace has been able to maintain competitiveness and innovation in the open cloud (computing, storage, networking). This sector is crowded and includes technology heavyweights such as Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), IBM (NYSE:IBM), even HP (NYSE:HPQ), et al. Rackspace has fostered efficiency and innovation through joining Facebook's (NASDAQ:FB) Open Compute Project. A close monitoring of margins is necessary with the ongoing, and fierce, price competition.

Rackspace continues as an attractive long position in 2013 and I consider RAX a buy. Just keep in mind growth has slowed and the stock rise will most likely be slower than in the past. RAX stock has dipped from the highs of late January and is testing the 50-day average during pre-earnings. A test of the 100-day is possible and would be an ideal entry point for a long position. I have traded RAX occasionally since the March 2009 bottom for the earnings pop during the high-growth phase. Unfortunately, those exceptional growth days are gone.

I will review the upcoming earnings announcement for additional information and confirmation for any other reasonable trade set-ups in 2013.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Rackspace Preview: Higher Earnings Expected