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Summary

  • Rackspace Hosting reported revenue and profits that met expectations.
  • Stronger revenue forecast re-affirms “buy” rating.
  • Improving performance marks a bottom in share price.

Rackspace Hosting (NYSE:RAX) reported a record quarter, generating revenue of $441 million and up 17 percent from last year. Revenue per server reached all-time highs. EBITDA improved only slightly, while EBITDA margin dropped to 32.1 percent.

Profits still fell in the third quarter. This is still an improvement from the previous quarter, when net income fell 30 percent and the company recognized charges from data center leases. Q2 benefitted slightly from new product launches. This includes OnMetal Cloud Servers and ObjectRocket. The firm also said in its press release that it would help developers build scalable applications for Rackspace solutions. This gave the firm confidence it would boost revenue by between 3 - 4.5 percent.

Rackspace was reviewed last year (and mentioned again here as a stock to buy) and did find an intermediate bottom, but not until early May, 2014. The stock surged in recent months when the firm openly searched for a buyer. A takeover is unlikely, but even without it, the stock remains a buy. Costs are in-line with expectations and valuations will go up as new products become more meaningful to the bottom line.

Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in RAX over the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Source: Update: Rackspace Hosting Earnings

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