Rackspace Hosting (RAX) Stock Falls: Earnings Beat, Guidance Misses

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Rackspace Hosting, Inc. (NYSE: RAX)

Rackspace is having a rough day in the market today, and for good reason. After the closing bell yesterday, the company reported earnings. While earnings and revenue came in ahead of expectations, they also showed a negative trend. On top of that, guidance was off quite a bit. Today, we’ll talk about what we saw from the earnings report, how the market reacted to the news, and what we can expect to see from RAX moving forward. So, let’s get right to it…

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RAX Produces Solid Earnings… But There’s A Catch!

As mentioned above, RAX reported earnings for the most recent quarter yesterday after the closing bell. While there was mixed data in the earnings report, all signs seemed to be pointing toward negativity. Here’s what we saw from Rackspace on earnings:

  • Earnings Per Share – When it comes to earnings per share, the results were a bit mixed. While analysts expected RAX to produce earnings in the amount of $0.24 per share, the company actually produced earnings in the amount of $0.31 per share. While that may seem to be positive, this does suggest a decline. After all, in the same quarter one year ago, Rackspace Hosting reported earnings in the amount of $0.36 per share.
  • Revenue – Overall, revenue came in relatively positive. In the quarter, analysts expected that RAX would produce revenue in the amount of $521 million. However, the company actually produced revenue in the amount of $523 million. This also came in well ahead of the same quarter one year ago when the company reported revenue in the amount of $473 million.
  • Guidance – With mixed results on earnings and positive results on revenue, RAX really needed guidance to hold things together. However, unfortunately, that was not the case. For the first quarter of 2016, RAX expects to produce revenue in the range between $517 million and $521 million. This is well below analyst expectations for the quarter in the amount of $529 million, causing concern among investors.

How The Market Reacted To The News

As investors, we know that there are few factors that have the ability to move the market quite like earnings. While there were definitely some positive aspects in the RAX earnings report, there was also quite a bit of negative. Ultimately, it came down to guidance breaking the tie between bearish and bullish sentiments. Unfortunately, guidance was negative overall, leading to a negative sentiment on the stock and, in the end, declines in value. Currently (10:38), RAX is trading at $17.73 per share after a loss of $0.44 per share or 2.42% so far today.

What We Can Expect To See Moving Forward

Moving forward, I have a relatively bearish opinion of what we can expect to see from Rackspace moving forward. The reality is that when we talk about RAX, we may be talking about the BlackBerry of online hosting. When there was little competition in the cloud, the company did incredibly well. However, now that the company has to compete with the likes of Amazon Web Services, there’s quite a bit changing for them. While I hope that I’m wrong here, I think that RAX is falling behind in the industry and that this will show when looking at earnings, revenue, and ultimately, their stock moving forward!

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What Do You Think?

Where do you think RAX is headed moving forward? Let us know your opinion in the comments below.

[Image Courtesy of Flickr]

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