Rackspace's acqusition of SharePoint-911 in Q1 2012 will help bolster its SharePoint hosting expertise

Rackspace Focuses on OpenStack as Q1 Earnings Miss Analyst Expectations

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Web hosting provider Rackspace announced its first quarter results in an earnings call on Monday afternoon, and while analysts were disappointed with the results, it is clear that Rackspace is banking on its cloud investments like OpenStack to ramp up future revenues.

Net revenue for Q1 2012 rose 31 percent year-over-year to $301 million, and Rackspace reported a profit of $23.2 million, or 17 cents a share, one cent shy of analysts expectations. There are many reasons for this, including increasing competition in the cloud space, as well as the infrastructure investment required to support scalable, always-on cloud environments.

In the first quarter, Rackspace focused a lot of capital on hiring new talent. According to a report on WallStCheatSheet.com, Lanham Napier, president and CEO says Rackspace considers the investment it makes in “human capitaal” to be the largest investment at the company. It focuses not only on hiring talented developers, but also people capable of providing the “fanatical support” it has built its brand on.

“We felt like that was a really good opportunistic investment that we made, and that we will get the return and benefits of those investments here throughout the rest of the year,” Napier says in the call. “So, we expanded our operations here in the US, as well as our internationally, specifically in some of our offices like San Francisco as we were making investments in software developers.”

At the end of the first quarter, Rackspace had 4,335 employees, an increase of 295 employees from the previous quarter. With Rackspace’s clear focus on OpenStack development, a portion of the new hires will likely work on OpenStack in some capacity.

“We believe that once OpenStack is fully deployed, it will tremendously improve the technical capabilities of our products, give us the ability to run large-scale apps, and bring Fanatical Support to the fastest-growing sector of the cloud computing market,” Napier says. “Completing this transition is the number-one product development milestone in 2012. The sooner we fully deploy OpenStack, the sooner we can serve large applications.”

While Rackspace is developing OpenStack internally, it is also focused on driving widescale adoption of the project. In a lot of ways, it’s already delivering on these plans. In April, 19 technology companies announced plans to become Platinum or Gold members in the OpenStack Foundation. OpenStack released its latest version, Essex in April as well, which combines expertise from 200 developers and adds about 150 new features. Recently, the WHIR spoke to Dell’s director of cloud and big data solutions Joseph B. George about Dell’s OpenStack-powered cloud solution.

According to the report, Rackspace’s dedicated cloud net revenue was $236,604 in Q1 2012, and its public cloud net revenue was $64,751. As more companies offer public cloud services, it will be interesting to see how Rackspace adapts. Recently, Rackspace launched its cloud computing technology consulting service to help enterprise migrate to cloud, so this may help bolster revenues.

In the first quarter, Rackspace acquired Sharepoint911 to increase its expertise in dedicated SharePoint hosting. Rackspace says its SharePoint customers tend to be more loyal and faster-growing than its typical customer.

As of March 31, 2012, Rackspace had 180,866 customers and 82,438 servers deployed, an increase of 8,356 customers and 2,633 servers over last quarter, respectively. According to the report, the average monthly revenue per server is $1,238.

Talk back: Are you surprised by Rackspace’s Q1 2012 earnings? Is your company’s investments in cloud paying off? Let us know in the comment section.

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About the Author

Nicole Henderson is the Editor in Chief of the WHIR, where she covers daily news and features online. She has a bachelor of journalism from Ryerson University in Toronto. You can find her on Twitter @NicoleHenderson.

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  1. Not surprising. As management and the sales force shift their focus to lower profit margin Cloud based services vs. managed service then quarters like this will be the case. Now RAX traditionally has had pretty high revenue per server based on their managed approach and I'll be watching to see if that number stays up there with their cloud model. I heard from a user that migrated about a week ago from their regular cloud service to Openstack and he said that there was no change in pricing. One of the drivers in RAX Openstack initiative is cost savings over a lot of manual processes they currently have. So, the next few quarters should be telling.

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