Rackspace Ends Quarter with 16 Percent YoY Net Revenue Growth, as it Competes with Cheaper ‘Unmanaged Infrastructure’

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Cloud hosting provider Rackspace ended its first quarter of 2014 with $421 million in net revenue, an increase in 3.2 percent from the previous quarter and 16 percent from the first quarter of 2013.

Throughout the quarter, Rackspace has signed on thousands of new customers, including one of its largest customers ever, and significant new workloads from existing customers such as Alex and Ani, Appboy, Clarks shoes, Under Armour and SunPower.

Over the past 12 months, Rackspace’s number of deployed servers grew from 94,122 to 106,229.

Rackspace CFO Karl Pichler noted in the earnings call that the first quarter of each year generally has lower revenue growth than the fourth quarter due to various seasonal factors. “Our goal continues to be to improve our revenue growth, and we do expect growth to improve in the second quarter.”

The company anticipates net revenue to grow 3 to 4.5 percent in Q2, placing total revenue in the range of $434 million to $440 million.

Not Just Competing on Price

In the company earnings call, Rackspace co-founder, executive chairman and CEO Graham M. Weston, acknowledged recent price drops among public cloud services from the likes of Amazon, Google and Microsoft. Weston noted that these services don’t provide the same customer experience as Rackspace’s managed cloud hosting, nor do their fees reflect the real cost of transitioning, running and scaling on the cloud.

“Our business has always been about more than just renting out access to infrastructure,” Weston said. “We add value by managing that infrastructure, as well as specializing in the complex tools and applications that run on top. While the other providers add value through economies of scale that yield low unit prices, we add value through economies of expertise, allowing customers to leverage the specialized expertise of our cloud engineers and architects.”

Weston said that customers value “its managed cloud approach and chose [Rackspace] over providers of less expensive unmanaged infrastructure.”

Since the beginning of the year, Rackspace has been engaged in several new undertakings. It partnered with Digital Realty Trust on a new 130,000 sq. ft. data center in Crawley, West Sussex, UK. It also launched a “Digital Services Practice,” which is designed to provide fully managed digital marketing for brands. And the company also appointed former eBay manager Ryan Neading as CIO and Microsoft veteran Will Knight as VP of channel partner sales.

It seems that Rackspace is avoiding the much-discussed cloud price wars, and keeping a steady course on providing managed cloud services that are worth paying for.

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