More on Rackspace's Q4: Revenue growth steady, but margins slip

Though Rackspace's (RAX) Q4 revenue growth (15.6% Y/Y) was nearly on par with a Q3 level of of 15.7%, its gross margin fell 190 bps Y/Y to 67.2%, adjusted EBITDA margin dropped 440 bps to 32.4%, and op. margin fell 740 bps to 6.7%.

Tough price competition from the likes of Amazon, Google, and Microsoft is has been pressuring margins, and so has Rackspace's aggressive spending: Sales/marketing spend +28% to $55.5M, R&D +47% to $16.9M, capex +32% to $115.8M (over 28% of revenue). Adjusted free cash flow was $15.3M, below net income of $20.8M.

Public cloud revenue (inc. OpenStack) +34% Y/Y vs. +37% in Q3, and now 29% of total revenue. Dedicated cloud (Web hosting) revenue +10% vs. +9% in Q3.

Rackspace's net upgrade rate was 1.1%, down from 1.5% in Q3 and 1.2% a year ago. Churn was -0.7% vs. -0.8% in Q3 and -0.7% a year ago.

Servers deployed rose 2% Q/Q and 15% Y/Y to 103.9K, and average revenue/server rose 2% Q/Q and 1% Y/Y to $1,322.

RAX -10.8% AH. Q4 results, CEO retirement, earnings PR.

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Comments (3)
  • Siwanoy
    , contributor
    Comments (717) | Send Message
    This report is editorializing and wrong. It mixes apples and oranges -- RAX is not in the same market as AWS and Google and I don't think anybody in this industry thinks they are.
    10 Feb 2014, 06:13 PM Reply Like
  • Eric Jhonsa
    , contributor
    Comments (1276) | Send Message
    Plenty of people think they are, at least if you're talking about the Public Cloud portion of their business. Rackspace's shares have moved on more than one occasion because of an Amazon price cut.

    10 Feb 2014, 06:15 PM Reply Like
  • Tricky
    , contributor
    Comments (2507) | Send Message
    RAX thinks they are.
    10 Feb 2014, 08:45 PM Reply Like
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