Rackspace Profit Surges

By Tess Stynes 

Rackspace Hosting Inc. reported a 77% rise in first-quarter earnings but provided a lackluster revenue outlook for the current quarter as the cloud-computing company continues its shift to becoming more of a services provider.

Shares of the San Antonio, Texas, company fell 6.2% to $21.15 in recent after-hours trading as the company's first-quarter revenue fell short of Wall Street estimates. Through Friday's close, the stock has declined 58% in the past 12 months.

For the current quarter, Rackspace estimated revenue of $519 million to $524 million, while analysts polled by Thomson Reuters expected revenue of $524 million. Rackspace, however, affirmed its 2016 revenue outlook.

Rackspace, a pioneer in the cloud market, has transitioned its business model in recent years to become more of a services provider offering bundled computing and support.

Last year, Rackspace and Amazon.com Inc., once fierce rivals, unveiled a partnership in which Rackspace will make its easier for for corporate customers to move computing operations from their own facilities to Amazon Web Services, as well make its easier for customers to use the cloud. Rackspace also has a partnership with Microsoft Corp.

While Rackspace has previously said agreements reached last year to provide managed-cloud services for Amazon Web Services and expanded services for Microsoft's Azure platform likely will represent a disproportionate percentage of its 2016 bookings, but aren't expected to have a material effect on revenue until 2017.

"We've continued to build market power behind our managed cloud strategy, " Chief Executive Taylor Rhodes said in prepared remarks. Demand for its Amazon Web Services, Microsoft Cloud and OpenStack private cloud is growing rapidly, Mr. Rhodes stated, noting that collectively Rackspace now provides services for more than 400 customers on those cloud platforms.

Over all, Rackspace reported a profit of $48.8 million, or 37 cents a share, up from $27.5 million, or 19 cents a share, a year earlier. Excluding an asset sale gain, stock-based compensation and other items, adjusted per-share earnings rose to 34 cents from 28 cents.

Revenue increased 7.9% to $518.1 million. Excluding currency effects and the sale of its Jungle Disk business, revenue improved by 9.9%.

Analysts expected per-share profit of 22 cents and revenue of $519 million.

Write to Tess Stynes at [e-mail]

(END) Dow Jones Newswires

May 09, 2016 17:51 ET (21:51 GMT)

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