Seeking Alpha
 

Rackspace Hosting, Inc. (RAX)

- NYSE
  • Wed, Aug. 26, 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.
    | 19 Comments
  • 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
    | 2 Comments
  • Tue, Jul. 14, 1:13 PM
    • A day after Rackspace (NYSE:RAX) announced a services partnership with Microsoft related to Azure, shares are rallying in response to a CRN report stating a similar deal with Amazon Web Services (NASDAQ:AMZN) is close.
    • CRN states a channel partner for both Rackspace and Amazon "approached his company with an offer to participate in a beta program in which Rackspace would manage and provide support for his customers hosting workloads in Amazon's cloud." The source: "They are going to wrap their managed 'Fanatical Support' around AWS and essentially become an Amazon reseller."
    • AWS had revenue of $5.16B over the 12 months ending March 31, and (per Synergy Research) still controls nearly 30% of the global cloud IaaS/PaaS market.
    • Rackspace is now up 8.5% over the last two days. Shares are still down 17% YTD.
    | 2 Comments
  • Mon, Jul. 13, 11:52 AM
    • Rackspace (RAX +3.6%) is partnering with Microsoft (NASDAQ:MSFT) to provide managed support, monitoring, and "architectural guidance" services to companies looking to deploy Microsoft's Azure cloud infrastructure/app (IaaS/PaaS) platform, which supports public, private, and hybrid cloud deployments.
    • The companies will also offer a hybrid cloud solution that combines Azure, Rackspace's private cloud solution, and Microsoft's Cloud Platform (a collection of products for deploying private clouds).
    • Rackspace, whose IaaS offerings compete with Azure and has often called its "fanatical" customer support as a differentiator, is offering both an Azure infrastructure and support bundle (effectively acts as a reseller arrangement), as well as a support-only option. The services will initially be provided to U.S. clients; international availability arrives in 2016.
    • Azure is believed to be the world's second-largest IaaS/PaaS platform, trailing only Amazon Web Services.
    | 8 Comments
  • Tue, May 12, 9:16 AM
    | 3 Comments
  • 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
    | 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
    | 3 Comments
  • Fri, Apr. 24, 11:08 AM
    • In its first quarter of breaking out Amazon Web Services' results on their own, Amazon reported the business had Q1 revenue of $1.57B (+49% Y/Y) and (notably) a $265M op. profit (+8%).
    • Rival Rackspace (NYSE:RAX) is getting a lift from the numbers ahead of its May 11 Q1 report. For reference, Rackspace had Q4 public cloud segment revenue of $147.7M (+26% Y/Y, 31% of total revenue).
    | 1 Comment
  • Mon, Apr. 20, 4:09 PM
    • Equinix (EQIX +1.6%) should post revenue and EBITDA ahead of Street estimates amid "y/y growth in MRR ... and a secular shift to the cloud," according to Pacific Crest's Michael Bowen and Trevor Upton. It's one of five stocks that Pacific Crest mentioned buying into upcoming earnings in its Q1 Communications Services Preview.
    • The stocks all get an Outperform rating from the analysts. Equinix received a $255 price target and the firm "would remind investors that our bull case on shares remains $280." Shares closed today at $239.80 and the firm reports April 29.
    • Rackspace (RAX +0.9%) also benefits from shifting business, the firm says: "We believe we are in the early stages of a secular shift from on-premise data centers to hybrid clouds made up of private and public cloud platforms. We believe the company is executing more efficiently and improving its managed service value proposition." Their price target is $58; shares closed today at $52.53 and the company reports May 11.
    • SBA Communications (SBAC +1.8%) got a price target of $138 on expectations of strong leasing activity and hearing about positive impact from the FCC's last spectrum auction; it closed today at $121.84 and reports on Friday.
    • Cogent Communications (CCOI +1%) received a price target of $45 and closed today at $34.24; it reports May 7. GTT Communications (GTT +1.6%) got a $24 target and closed today at $18.31; it reports May 7 as well.
    | Comment!
  • Thu, Apr. 9, 10:56 AM
    • BofA/Merrill has downgraded cloud HR/payroll software vendor Paylocity (PCTY -5.9%) and cloud fleet management software vendor Fleetmatics (FLTX -3.2%) to Underperform, and cloud contact center software vendor Five9 (FIVN -4.7%) to Neutral. Rackspace (NYSE:RAX) and Citrix (NASDAQ:CTXS) have also been downgraded (to Neutral and Underperform, respectively), but are posting sub-1% declines.
    • Shares of all 3 companies rallied in February in response to Q4 beats (I, II, III)
    | 1 Comment
  • Thu, Feb. 19, 2:58 PM
    • Today's notable tech gainers include fiber equipment provider Zhone (ZHNE +10.6%), IP licensing firm VirnetX (VHC +7%), healthcare software provider Allscripts (MDRX +4.8%), app development software provider Pegasystems (PEGA +6%), software outsourcing firm EPAM (EPAM +5.6%), security software/service provider Imperva (IMPV +5.3%), and cloud HR software provider Paylocity (PCTY +4.5%).
    • Notable decliners include Chinese search/app store/security app provider Qihoo (QIHU -5.2%), Web hosting/cloud infrastructure provider Rackspace (RAX -3.9%), LED equipment maker Veeco (VECO -4.9%), and analog/mixed-signal chipmaker MagnaChip (MX -5%). The Nasdaq is up 0.4%.
    • VirnetX is adding to the Wednesday gains seen after Apple patent review petitions were denied, and Qihoo is adding to the losses seen following a Jefferies downgrade.
    • Rackspace and Veeco are reversing the gains they saw yesterday after posting their Q4 reports (I, II), and then some. MagnaChip is now down 58% since posting its Q1-Q3 results a week ago.
    • Previously covered: SolarCity, Facebook, Castlight, Applied Materials, DragonWave, Nimble Storage, AVG, Ascent Solar, Netlist
    | Comment!
  • 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
    | 9 Comments
  • Tue, Feb. 17, 5:37 PM
    • Top gainers, as of 5:15 p.m.: ENPH +14.1%. BSX +11.6%. PBPB +9.9%. LINC +8.7%. YGE +6.9%.
    • Top losers, as of 5:15 p.m.: PERY -14.3%. FOSL -13.4%. ZIXI -10.0%. LZB -7.3%. RAX -4.6%.
    | Comment!
  • 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
    | 2 Comments
  • Dec. 12, 2014, 9:23 AM
    • Though Rackspace's (NYSE:RAX) decision to differentiate itself in a very competitive cloud infrastructure market by sticking to its historical focus on "fanatical service" is a sound one, the "steady inherent growth presented by the service market has been more than adequately priced into the stock," says D.A. Davidson's Mark Kelleher, downgrading to Underperform.
    • His $40 target is equal to 7x Davidson's 2016 EBITDA forecast of $793M. Rackspace was up 77% from its May low of $26.18 going into today.
    | 2 Comments
  • Nov. 20, 2014, 5:17 PM
    • Rackspace (NYSE:RAX) founder/chairman Graham Weston has bought $2.5M worth of shares on Tuesday at an average price of $42.75, and plans to buy up to $2.5M more over the next year through a 10b5-1 trading plan.
    • Weston's move comes in the wake of last week's big post-earnings gains. Rackspace is making new 52-week highs in AH trading.
    | Comment!
Visit Seeking Alpha's
RAX vs. ETF Alternatives
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.