Rackspace Hosting Profit Rises 12%

By Tess Stynes 

Rackspace Hosting Inc. said its first-quarter earnings rose 12% as the cloud-computing company posted stronger revenue.

However, shares fell 13% to $46.20 in recent after-hours trading as the company's earnings and revenue were merely in line with expectations.

San Antonio-based Rackspace is facing intense competition from deep-pocketed rivals like Amazon.com Inc., Google Inc., Microsoft Corp. and International Business Machines Corp., which have been engaging in fierce price competition.

The provider of cloud-computing services in September called off its so-called strategic evaluation process that could have led to a sale of the company. Though Rackspace had said it had been approached by "multiple parties" under various scenarios, the company also said none of the offers matched the value it believed it can create with its own stand-alone plan.

Investors have been paying a sharply higher multiple than they were a year ago, right before speculation about a possible deal arose.

Overall, Rackspace reported a profit of $28.4 million, or 20 cents a share, up from $25.4 million, or 18 cents a share, a year earlier. Analysts expected per-share profit of 20 cents.

Revenue increased 14% to $480.2 million, in line with the company's expectations for $477 million to $484 million. Excluding currency impacts, revenue rose nearly 17%.

At quarter's end, the number of servers deployed rose to 114,105 from 106,229 a year earlier. Average monthly revenue per server increased 5.7%.

Total costs and expenses increased 14%.

Write to Tess Stynes at [e-mail]

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