Rackspace dives as Street mulls margins, transparency, M&A

|About: Rackspace Hosting, Inc. (RAX)|By:, SA News Editor

"Management provided no color with regard to the strategic alternatives the board is evaluating and did not provide a timeline for a decision," observes Piper's Andrew Nowinski, discussing Rackspace's (RAX -7.2%) cautious CC remarks (transcript) about its strategic review.

Nonetheless, Nowinski declares Rackspace's business to be "in good shape," as proven by "accelerating growth in the dedicated segment and better-than-expected revenue guidance."

Pac Crest's Michael Bowen isn't pleased management stated it's thinking of no longer providing guidance and/or breaking out Web hosting and public cloud revenue. "We believe now is not a good time to become less transparent due to uncertainties around an M&A deal and changes in the marketplace."

Multiple analysts have taken note of Rackspace's EBITDA margin decline. CFO Karl Picher suggested Rackspace's revamped pricing will eventually boost margins. "We expect that we will have fewer low-paying customers than we currently have ... we are aiming for the high ARPU, high workloads, growing customer set that we serve exceptionally well."

Prior Rackspace earnings coverage