Rackspace: Amazon Survivor Deserves Respect
Darspal S Mann
Darspal S Mann
Rackspace: A Silver Lining In The Cloud?
7 Reasons Why Rackspace Is A Sell
Follow The Data
Follow The Data
7 Reasons Why Rackspace Is A Sell
Follow The Data
Follow The Data
Mon, May 9, 4:24 PM
- Rackspace Hosting (NYSE:RAX) is off 7.8% in choppy trade after hours, following a Q1 report where it easily cleared profit expectations and revenues fell short, despite growing nearly 10% on an adjusted basis.
- Net income was up 77.5% Y/Y, and margin at 9.4% (up from a year-ago 5.7%). And EBITDA rose 11.7% to $179M, beating an expected $176.1M.
- GAAP revenues were affected by currency as well as the sale of the company's Jungle Disk business.
- Free cash flow hit a record $94M.
- For Q2, it's forecasting revenues of $519M-$524M (vs. consensus of $523.7M) and for the full year, revenues of $2.08B-$2.16B, in line.
- Conference call to come at 4:30 p.m. ET.
- Press Release
Wed, Feb. 17, 11:59 AM
- Though Barclays, Pac Crest, Stifel, and Credit Suisse have downgraded Rackspace (RAX +2.1%) to neutral ratings after the company provided light Q1/2016 sales guidance to go with a Q4 beat, shares have turned green, erasing double-digit early-morning losses along the way.
- Low expectations are helping: Rackspace went into earnings down 68% from a 52-week high of $56.20. Shares currently go for just 1.2x Rackspace's 2016 sales guidance midpoint of $2.12B.
- Pac Crest's Michael Bowen is worried about the revenue uncertainty surrounding Rackspace's deals with Amazon and Microsoft to provide support, management, and consulting services for AWS/Azure deployments. "While Rackspace continues to attempt to win value-added contracts associated with other cloud platforms, the contracts are not material enough to offset softness in Rackspace's public cloud revenue."
- Credit Suisse's Sitikantha Panigrahi notes Rackspace's guidance implies just 4%-8% 2016 revenue growth, and thinks the company will face challenges in both retaining cloud clients and competing with Amazon's existing partners.
- Oppenheimer's Tim Horan (Outperform, target cut by $13 to $30) is cautiously optimistic. "2016 will largely be another transition year, as AWS is the focus for RAX, but it needs to improve its capabilities. RAX is positioning itself and its resources to capture incremental workloads that will likely flow to AWS/AZURE. RAX's execution has been poor; at least it is going in the right direction, and we expect growth to bottom midyear. Positively RAX's services are in strong demand."
- On the earnings call (transcript), CEO Taylor Rhodes stated Rackspace's 2016 guidance accounts for "expected Q1 softness, our lower expectations for growth in our OpenStack public cloud and the uncertain economic environment." Q1, meanwhile, is expected to be slower than normal due to "shifts that we are making in our marketing and sales efforts toward our multi-cloud offers."
- Rhodes doesn't mince words about AWS/Azure's strong competitive positioning relative to Rackspace's OpenStack public cloud offerings. "I think it's fair to say that more and more incremental or new workloads are heading to AWS and Azure. Winning those new workloads used to be a key part of our growth driver; and without them we expect our OpenStack public cloud growth to slow in 2016, and that's a factor baked into the guidance as well."
Wed, Feb. 17, 9:14 AM
Tue, Feb. 16, 5:13 PM
- Initially down just slightly after hours following its Q4 beat, Rackspace (NYSE:RAX) is now down 8.6% to $16.64. Soft guidance is weighing: Rackspace expects Q1 revenue of $517M-$521M vs. a $530.7M consensus, and 2016 revenue of $2.08B-$2.16B vs. a $2.21B consensus.
- Q1 and 2016 adjusted EBITDA margin guidance is at 33%-35%; the reported 2015 margin was 34.2%, up 50 bps Y/Y. Capex is expected to equal 20%-22% of 2016 revenue; it was 23% of revenue ($466M) in 2015.
- Financials: GAAP costs/expenses rose 9% Y/Y to $461.3M (compares with 10.7% revenue growth). Adjusted free cash flow rose 54% Y/Y in Q4 to $84.5M, and 21% in 2015 to $196.4M. Lifting EPS: $116.9M was spent on buybacks in Q4, and $367M over the whole of 2015. Rackspace ended 2015 with $485M in cash and $492M in debt.
- Metrics: Average revenue per server rose $28 Q/Q and $60 Y/Y to $1,472. Servers deployed fell fractionally Q/Q to 118,177; they were up 5% Y/Y.
- The soft sales guidance comes amid ongoing worries about the impact of rival public cloud platforms on both Rackspace's cloud sales and traditional hosting revenue. Rackspace sold off in January following Microsoft and Amazon cloud computing service price cuts.
- Rackspace's Q4 results, earnings release
Mon, Feb. 8, 2:37 PM
- Many tech stocks are seeing 6%+ losses as investors flee to safety yet again. The Nasdaq is down 3.4%, and the S&P 2.7%.
- As was the case on Friday following Tableau and LinkedIn's disappointing guidance, a slew of enterprise tech stocks are seeing big losses, with cloud software and security tech names well-represented on the casualty list.
- Also: Solar stocks are having another brutal day (TAN -6.7%) as energy stocks get routed amid fears Chesapeake Energy is close to bankruptcy. WTI crude oil is once more near $30/barrel.
- Enterprise software decliners: Adobe (ADBE -9.6%), Paylocity (PCTY -19.1%), Salesforce (CRM -9.9%), Workday (WDAY -12%), Guidewire (GWRE -12.5%), ServiceNow (NOW -11.5%), Zendesk (ZEN -13.8%), Paycom (PAYC -13.4%), Marin Software (MRIN -10.3%), Castlight (CSLT -8.4%), Cornerstone OnDemand (CSOD -12.1%), Atlassian (TEAM -13.2%), inContact (SAAS -9.6%), and Bazaarvoice (BV -14.5%).
- Enterprise security decliners: Palo Alto Networks (PANW -12.2%), FireEye (FEYE -9.8%), CyberArk (CYBR -11.5%), Proofpoint (PFPT -12.7%), Qualys (QLYS -8.9%), Imperva (IMPV -9.7%), Rapid7 (RPD -9.4%), and Barracuda (CUDA -8.4%).
- Solar decliners: SunEdison (SUNE -11.3%), SunPower (SPWR -8.8%), JinkoSolar (JKS -7.6%), SolarEdge (SEDG -7.9%), Yingli (YGE -7.1%), TerraForm Power (TERP -10.7%), and TerraForm Global (GLBL -9.2%).
- Other major decliners: Micron (MU -9.1%), Western Digital (WDC -10.5%), Arista (ANET -10.9%), Universal Display (OLED -10.6%), Rackspace (RAX -11.3%), Fitbit (FIT -8.7%), Nimble Storage (NMBL -11.3%), Sierra Wireless (SWIR -9.9%), Rocket Fuel (FUEL -9.8%), Knowles (KN -9%), Mitel (MITL -8.9%), and Alarm.com (ALRM -8.9%).
- Previously covered: Yelp, Cognizant, Tableau, Globant, Ambarella, European tech stocks
Mon, Jan. 11, 12:57 PM
- Investors continue throwing in the towel on former tech high-flyers: Micron (MU -6.3%), GoPro (GPRO -4.4%), Fitbit (FIT -12.3%), 3D Systems (DDD -3.7%), Rackspace (RAX -6.7%), and Etsy (ETSY -8.8%) have each fallen to new 52-week lows on a day the Nasdaq is down 0.6%.
- FireEye, which received cautious notes from Wedbush and Piper, is also selling off. As is ExOne (XONE -11.6%). Margin calls and/or fund liquidations could be contributing to the rout.
- Etsy's losses come amid a lockup expiration. Possibly weighing on Rackspace: A Piper CIO survey indicating Amazon Web Services and Microsoft Azure continue gaining cloud infrastructure (IaaS) mindshare; the firm sees AWS/Azure having a duopoly, with Google, Rackspace, and IBM trailing.
- Fitbit is now down 35% since Jan. 5, when the company's Blaze smartwatch was unveiled at CES. Shares go for 17x a 2016 EPS consensus of $1.13. GoPro and Micron now respectively trade for 14x and 8x their 2016 and FY17 (ends Aug. '17) consensus EPS estimates.
- Update: Likely weighing on ExOne: The company has struck deals for at-the-market stock offerings worth up to $50M.
Dec. 14, 2015, 10:47 AM
- Citing concerns about cloud competition and believing Rackspace's (RAX -1.8%) investments in supporting 3rd-party cloud platforms bring transition risk, UBS' Steve Milunovich has cut his target to $28 (equal to 28x his 2016 EPS estmate), while reiterating a Neutral.
- Milunovich doesn't expect Rackspace's 2015 deal to provide consulting, management, and support services for Amazon Web Services deployments (followed a similar deal for Microsoft Azure) will yield material revenue until 2017. However, he does expect margins to be comparable to existing deals (and ROIC above), and states early signs suggest most clients are selecting Rackspace's more costly Aviator support tier.
- Milunovich cautions Rackspace's transition is looking expensive are more personnel are hired to support rival cloud platforms. He thinks a deal to support Google's platform could happen in time.
- Shares are less than $2 away from a 52-week low of $23.65. RBC upgraded on Dec. 1.
Dec. 1, 2015, 10:12 AM
- Predicting the company will benefit from strong enterprise cloud infrastructure (IaaS) demand, RBC's Jonathan Atkin has upgraded Rackspace (NYSE:RAX) to Outperform. His target remains at $36.
- Atkin: "In our view, part of the accelerated [enterprise cloud] demand will be in the managed cloud segment, where RAX stands to gain by virtue of its growing ability to provide support on [third-party] cloud platforms, as well as its own OpenStack-based platform.
- He thinks revenue growth could accelerate in 2016, and that capex intensity could decline (boosting free cash flow). Atkin also believes Rackspace "could have strategic appeal as an acquisition target for companies wishing to expand their cloud, hosting, and IT product and market reach."
- The upgrade comes three weeks after Rackspace jumped in the wake of a Q3 beat fueled in part by margin growth and large buybacks.
Nov. 19, 2015, 5:21 PM
- Google (GOOG, GOOGL) has bought Bebop Technologies, a stealth-mode startup that has been working on an enterprise cloud app development platform, and which was founded by VMware co-founder and Google board member Diane Greene.
- Greene will now lead a new unit containing all of Google's cloud businesses, including Google Apps (productivity apps), Google for Work (custom versions of Google products for enterprises), and the Google Cloud Platform (cloud infrastructure and app platform services). CEO Sundar Pichai declares the move will "bring together product, engineering, marketing and sales and allow us to operate in a much more integrated, coordinated fashion."
- Pichai provides some vague details regarding Bebop: "[B]ebop is a new development platform that makes it easy to build and maintain enterprise applications ... bebop and its stellar team will help us provide integrated cloud products at every level: end-user platforms like Android and Chromebooks, infrastructure and services in Google Cloud Platform, developer frameworks for mobile and enterprise users, and end-user applications like Gmail and Docs."
- The move comes shortly after Google SVP Urs Hölze proclaimed (in remarks that may or may not have been blessed by Google's brass) the company's Cloud Platform revenue could surpass its ad revenue in five years. With 90% of Google's Q3 revenue coming from ads (and much of the rest from hardware, Google Play, etc.), that could prove a tall order.
- Rackspace (NYSE:RAX) fell 6.1% in regular trading, with Hölze's remarks having been mentioned as a potential culprit. Stifel defended Rackspace, arguing the remarks were misunderstood and that Rackspace will eventually strike a deal to provide managed services for Google's cloud offerings, much as it has with Amazon and Microsoft.
- Synergy Research estimates Google is the 4th-largest player in the in the broader market for public, private, and hybrid cloud services, trailing IBM, Microsoft, and 800-lb. gorilla Amazon. The company has tried to differentiate its cloud offerings by emphasizing developer needs; the Bebop acquisition fits with that effort.
Nov. 10, 2015, 12:48 PM
Nov. 10, 2015, 9:13 AM
Nov. 9, 2015, 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
Nov. 2, 2015, 10:08 AM
- Stating fundamentals appear to be stabilizing, BofA/Merrill's Scott Shiao has upgraded Rackspace (NYSE:RAX) to Buy ahead of its Nov. 9 Q3 report, and set a $38 target.
- Shiao adds an LBO analysis indicates upside, and that capex cuts could yield a higher valuation. Rackspace ended a strategic review last year after failing to strike a deal,
- Shares still -40% YTD. They sold off in August in response to a Q2 sales miss and light guidance. Worries about competition from Amazon and other major cloud infrastructure providers has weighed.
Oct. 5, 2015, 12:29 PM
- Rackspace (NYSE:RAX) is flying higher on a day the Nasdaq is up 1.1%. 1.92M shares have been traded thus far vs. a 3-month daily average of 2.545M.
- Rackspace is widely expected to announce a partnership with bigger rival Amazon Web Services this week, at the latter's AWS re:Invent conference (runs from Tuesday-Friday). Much like Rackspace's July deal with Microsoft, the agreement is expected to cover Rackspace managed support and monitoring services for AWS deployments.
- Shares closed on Friday just $0.62 above a 52-week low of $23.65. 10.7M shares (nearly 11% of the float) was shorted as of Sep. 15.
Aug. 26, 2015, 4:21 PM
- The Nasdaq has closed its latest ultra-volatile day up 4.2%. Chip stocks, hit hard in recent weeks amid China/inventory concerns, were among the standouts (SOXX +5%) during the rally: Big gainers included Nvidia (NVDA +7.5%), Skyworks (SWKS +6.9%), Qorvo (QRVO +5.9%), Xilinx (XLNX +6.3%), Analog Devices (ADI +7.1%), Linear (LLTC +6.1%), SanDisk (SNDK +7.4%), ON Semi (ON +6.2%), and Cavium (CAVM +5.6%).
- Cybersecurity plays and various other enterprise tech names also did well. Standouts included HP (HPQ +5.5%), Palo Alto Networks (PANW +6%), Rackspace (RAX +9.8%), Red Hat (RHT +5.9%), KEYW (KEYW +8.1%), Brocade (BRCD +5.6%), ShoreTel (SHOR +5.7%), Violin Memory (VMEM +14.7%), and Rapid7 (RPD +7.2%).
- In addition to HP, tech large-caps turning in big gains included Apple (AAPL +5.7%) Microsoft (MSFT +5.5%), Google (GOOG +7.7%), and Intel (INTC +5.5%). Google benefited from a Goldman upgrade.
- KEYW announced a CEO change yesterday afternoon. HP and Brocade are adding to last week's post-earnings gains. Skyworks/Qorvo peer Avago has posted an FQ3 beat after the close.
Aug. 10, 2015, 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
Rackspace Hosting, Inc. provides managed hosting solutions. It delivers enterprise-level hosting services to businesses of all sizes and kinds around the world. The Rackspace portfolio includes cloud computing services, including public, dedicated and private cloud, hybrid hosting and delivers... More
Industry: Internet Software & Services
Country: United States
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