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Rackspace Hosting, Inc. (RAX)

  • Mon, Nov. 9, 7:11 PM
    • Rackspace (NYSE:RAX) spent $250M on buybacks in Q3. The company is three months removed from upping its buyback authorization to $1B, and promising to buy back at least $500M worth of shares in 6-9 months.
    • Adjusted EBITDA margin was 34.9%, up 180 bps Q/Q and 40 bps Y/Y, and above guidance of 33%-34%. Q4 guidance is still at 33%-34%. Adjusted free cash flow rose 9% Y/Y to $45.2M, with adjusted EBITDA growth offsetting a 9% increase in capex to $127.7M (a healthy 25% of revenue).
    • GAAP costs/expenses rose 8% to $452.4M. Average monthly revenue per server rose by $28 Q/Q and $39 Y/Y to $1,444. Servers deployed rose 2% Q/Q and 7% Y/Y to 118,654.
    • Rackspace's $350M debt offering consists of senior notes due 2024. A portion of the proceeds will be used to repay credit facility debt; the remainder will be used for general corporate purposes that may include buybacks. Rackspace ended Q3 with $213.5M in cash, and $25.1M in debt.
    • Shares have risen to $29.20 after hours, after dropping 4.2% in regular trading. BofA/Merrill's pre-earnings upgrade is looking good.
    • Q3 results/Q4 guidance, PR
    | Mon, Nov. 9, 7:11 PM | 2 Comments
  • Mon, Nov. 9, 4:10 PM
    • Rackspace Hosting (NYSE:RAX): Q3 EPS of $0.26 beats by $0.06.
    • Revenue of $508.9M (+10.7% Y/Y) beats by $5.82M.
    • Expects 2%-3% Q/Q Q4 constant currency revenue growth. Consensus is for 1.7% Q/Q and 9.6% Y/Y growth in actual dollars.
    • $350M debt offering announced.
    • Shares +1.5% after hours.
    • Press Release
    • Update (4:32PM ET): Rackspace is now up 8.4%.
    | Mon, Nov. 9, 4:10 PM | Comment!
  • Sun, Nov. 8, 5:35 PM
  • Mon, Aug. 10, 4:25 PM
    • Rackspace (NYSE:RAX) uses its Q2 report to announce the company's buyback authorization has been hiked to $1B; a $500M buyback was launched last November, of which $200M has been used. At least $500M worth of shares will be repurchased in 6-9 months.
    • The program will be financed with a mixture of existing cash, future cash flows, and debt. Rackspace now plans to have a debt level equal to 1.5x annual EBITDA, and expects to achieve it in the next 24 months.
    • Guidance: Q3 guidance is for revenue to rise 2%-3.5% Q/Q on a constant currency basis; consensus is for revenue to rise 4% Q/Q in dollars to $511.1M. Q4 guidance is also for 2%-3.5% Q/Q constant currency growth, and full-year guidance is for 12%-14% Y/Y constant currency growth; the 2015 revenue growth consensus (in dollars) is at 12.2%. Adjusted EBITDA margin guidance for all 3 periods is 33%-34% (compares with Q2's 33.1%, +100 bps Y/Y).
    • As previously indicated, Rackspace is no longer breaking out its dedicated cloud (Web hosting) and public cloud (IaaS) revenue. Average revenue/server rose by $4 Q/Q and $41 Y/Y to $1,416. Servers deployed rose 2% Q/Q and 8% Y/Y to 116,329.
    • Cost controls helped EPS meet estimates in spite of a revenue miss: GAAP costs/expenses rose 7% Y/Y to $435.8M, less than revenue growth of 11%. Ahead of the new capital structure policy, Rackspace ended Q2 with $317M in cash, and just $7M in debt.
    • Shares have risen to $33.11 in AH trading.
    • Q2 results, PR
    | Mon, Aug. 10, 4:25 PM | 2 Comments
  • Mon, Aug. 10, 4:03 PM
    • Rackspace Hosting (NYSE:RAX): Q2 EPS of $0.20 in-line.
    • Revenue of $480.2M (+8.9% Y/Y) misses by $10.34M.
    • Shares +4% AH
    • Press Release
    | Mon, Aug. 10, 4:03 PM | Comment!
  • Sun, Aug. 9, 5:35 PM
  • Mon, May 11, 5:03 PM
    • With forex clearly a headwind (it had a 250 bps impact on Q1 revenue growth), Rackspace's (NYSE:RAX) guidance for Q2 revenue to be up 1.5%-2.5% Q/Q in constant currency implies Q2 sales will fall short of a consensus of $502.1M (+4.6% Q/Q in actual dollars).
    • Financials: Revenue growth fell to 14.1% Y/Y in Q1 from Q4's 15.8% and Q3's 18.3%. Gross margin was 66.4%, -100 bps Q/Q and -30 bps Y/Y. R&D rose to 6.7% of revenue from 6% a year ago, and G&A to 18% from 16.9%. Sales/marketing fell to 12.3% from 13.6%. $90.2M was spent on capex, -10% Y/Y and equal to 19% of revenue.
    • Business metrics: Average revenue/server was $1,412, flat Q/Q and up $76 Y/Y; it had been rising Q/Q in prior quarters. Servers deployed rose 1% Q/Q and 7% Y/Y to 114,105. Headcount rose by 28 Q/Q and 221 Y/Y to 5,964. Rackspace is no longer breaking out its dedicated cloud (Web hosting) and public cloud (IaaS) revenue.
    • Also: 1) Adjusted EBITDA margin was 33.6% vs. 35% in Q4 and 33.2% a year ago (Q2 guidance is at 32%-34%). 2) Adjusted free cash flow was $67.4M, +69% Y/Y and above net income of $28.4M. 3) No buybacks took place; $200M was spent on them in Q4. Rackspace says it's seeing "a rising number of new, larger enterprise customers."
    • Rackspace has fallen to $46.88 AH. Is competition taking a toll? Amazon's AWS revenue rose 49% Y/Y in Q1 to $1.57B, and Synergy Research thinks Microsoft, IBM, and Google saw even faster IaaS/PaaS cloud service growth (albeit off much smaller bases).
    • Q1 results, PR
    | Mon, May 11, 5:03 PM | Comment!
  • Mon, May 11, 4:09 PM
    • Rackspace Hosting (NYSE:RAX): Q1 EPS of $0.20 in-line.
    • Revenue of $480.2M (+14.1% Y/Y) misses by $1.37M.
    • Expects 1.5%-2.5% Q2 revenue growth on a constant currency basis and an adjusted EBITDA margin of 32%-34%.
    • Shares -9.9% AH.
    • Press Release
    | Mon, May 11, 4:09 PM | 3 Comments
  • Sun, May 10, 5:35 PM
  • Wed, Feb. 18, 12:15 PM
    • Down AH yesterday due to the light sales guidance provided with its mixed Q4 results, Rackspace (RAX +1.4%) is now back above $50. Helping its cause: Pac Crest has upgraded to Outperform, and at least four firms have hiked their targets.
    • Pac Crest cites enterprise and OpenStack momentum as reasons for upgrading: "In the second half of 2014, Rackspace won more large enterprise contracts worth at least $100,000 per month than it had in the prior five quarters combined ... management indicated that OpenStack now makes up more than 50% of its public cloud revenue, which implies OpenStack revenue is at least 15.6% of its total revenue."
    • Cowen (target hiked to $75) now considers it likely Rackspace "will announce support for a mega cloud provider in 1H15," thereby boosting its long-term addressable market and lowering future capex needs (in exchange for sharing revenue). It adds sales guidance was in-line after adjusting for forex, and that EBITDA margin guidance was better than expected.
    • Meanwhile, new CEO Taylor Rhodes argues the cloud infrastructure (IaaS) market's price war is calming down. "Amazon Web Services (NASDAQ:AMZN) in November, for the first time, didn’t make a price cut move ... AWS is feeling like they are the reference brand leader, that they are strong versus Google (NASDAQ:GOOG), so they don’t need to do it as much. Microsoft (NASDAQ:MSFT) is cutting price, but who knows how much share they are actually taking."
    • He also reiterates Rackspace's assertion that its OpenStack/hybrid cloud offerings are differentiated in the battle for enterprise accounts. "The mainstream market has two problems: They have legacy apps that won’t go [to multi-tenant public clouds] automatically ... the second problem they have is this skills set gap ... There is a need for software and tools development."
    • Q4 results, guidance/details
    | Wed, Feb. 18, 12:15 PM | 9 Comments
  • Tue, Feb. 17, 4:22 PM
    • With forex providing a 1% headwind, Rackspace (NYSE:RAX) expects Q1 revenue of $477M-$488M, below a $490.5M consensus. Full-year revenue guidance is at $2B-$2.1B vs. a $2.08B consensus (2% forex headwind).
    • Q4 adjusted EBITDA margin was 35%, +50 bps Q/Q and +260 bps Y/Y, and at the high end of a 33%-35% guidance range. However, Q1 guidance is at 32%-34% (cloud price pressure?), and full-year guidance at 33%-36% (still favorable to 2014's 33.7% at the midpoint).
    • Dedicated cloud (Web hosting) revenue rose 8% Y/Y in Q4 to $324.7M, a slowdown from Q3's 14%. Public cloud revenue (inc. OpenStack) grew 26% to $147.7M after growing 29% in Q3. Servers deployed rose to 112.7K from 110.5K in Q3 and 103.9K a year ago, and average revenue/server grew to $1,412 from $1,405 and $1,322.
    • Gross margin was 67.4%, up 20 bps Y/Y but down 150 bps Q/Q. Total costs/expenses rose 11% Y/Y to $422.4M (less than revenue growth of 15.8%).
    • Free cash flow was $55M, above net income of $36.9M. $105M (22% of revenue) was spent on capex.
    • Shares have fallen to $47.00 in AH trading. They went into earnings up more than $12 from where they traded prior to Rackspace's Q3 report.
    • Q4 results, PR
    | Tue, Feb. 17, 4:22 PM | 2 Comments
  • Tue, Feb. 17, 4:03 PM
    • Rackspace Hosting (NYSE:RAX): Q4 EPS of $0.26 beats by $0.07.
    • Revenue of $472.42M (+15.8% Y/Y) misses by $1.56M.
    • Shares -3.77%.
    • Press Release
    | Tue, Feb. 17, 4:03 PM | Comment!
  • Mon, Feb. 16, 5:35 PM
  • Thu, Jan. 15, 6:04 PM
    • Rackspace (NYSE:RAX) will report Q4 results after the close on Tuesday, February 17. The conference call will begin at 4.30 pm ET.
    • Consensus views are for EPS of $0.19 and revenue of $474.51M (+16.3% Y/Y).
    | Thu, Jan. 15, 6:04 PM | Comment!
  • Nov. 11, 2014, 4:43 PM
    • Rackspace's (NYSE:RAX) Q3 numbers show the company "can carve out a niche" in a very competitive cloud infrastructure market by focusing on service quality, thinks Credit Suisse, hiking its target to $45. The firm also argues the re-acceleration seen in Rackspace's revenue growth points to improved execution.
    • Likewise, Oppenheimer asserts Rackspace appears to be achieving "a customer care niche in hybrid cloud that is defensible." It recommends buying if shares fall again in response to Amazon price cuts; with Google having just slashed prices, Amazon might respond at this week's AWS re:Invent conference.
    • Canaccord, however, is still cautious. "Although the management transition has been executed better than we had expected with respect to the Q3/14 results, we are not convinced we are on a complete road to recovery and that the countervailing trends of intense competitive pressures, contrasted with the strong secular demand, warrant a HOLD rating."
    • Shares made new 2014 highs today. They're still well below an early-2013 high of $81.36.
    • Prior Rackspace coverage
    | Nov. 11, 2014, 4:43 PM | 4 Comments
  • Nov. 10, 2014, 4:28 PM
    • Rackspace (NYSE:RAX) expects Q4 revenue of $469M-$476M, below a $476.5M consensus. Forex is expected to have a $5M revenue impact.
    • Q3 adjusted EBITDA margin was 34.5%, +240 bps Q/Q and +220 bps Y/Y, above guidance of 31%-33%, and well-received in light of the cloud infrastructure (IaaS) price pressure Rackspace has seen. Q4 guidance is at 33%-35%. A recent pricing overhaul is likely helping.
    • Adjusted free cash flow was $41.5M, above net income of $25.7M. Capex still amounted to $117M (a steep 25% of revenue).
    • Gross margin rose 180 bps Q/Q and 170 bps Y/Y to 68.9%. As a result, GAAP costs/expenses were 91.2% of revenue, down from 92.3% in Q2 and 92.9% a year ago.
    • Dedicated cloud (Web hosting) revenue +14% Y/Y to $319.6M. Public cloud (IaaS) revenue +29% to $140.2M.
    • Servers deployed rose 3% Q/Q to 110.4K, and average revenue/server rose by $30 to $1,405. Churn rose slightly to -0.6%, and net upgrade rate fell slightly to 1.4%.
    • Q3 results, PR
    | Nov. 10, 2014, 4:28 PM | Comment!
Company Description
Rackspace Hosting Inc, through its operating subsidiaries, is a provider of cloud computing services, managing web-based IT systems for small and medium-sized businesses as well as large enterprises.