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Rackspace Shares Fall as Cloud Provider Reports Q2 Results

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After announcing record results for Q2 2014 including $441 million in revenue, Rackspace share price has tumbled, as speculation about the cloud giant’s future continues. Rackspace opened at $29.50 on Wednesday, a fall of almost 6 percent since closing at $31.31 immediately before the earnings announcement on Monday.

The early Wednesday price is also a drop of nearly 12 percent since the WHIR reported on speculation that the company may go private rather than join with another company.  M&A talk was ignited by a SEC filing in May, which disclosed the company’s consultation with Morgan Stanley.  The market was optimistic about Rackspace as speculation ran rampant, but as time passes without a deal, market sentiment has changed.

Rackspace has shifted its focus to include services other than infrastructure, and Gartner named it a leader in managed hosting in both North America and Europe. Regular price reductions from the largest public cloud providers may have intensified pressure on Rackspace to make the change.

However, the cloud market is also evolving in terms of geography, hardware, and service types. With Q2 2014 revenue rising 4.8 percent from Q1 and 17 percent from Q2 2013, Rackspace hardly sounds like a company out of options.

“This was a record quarter for Rackspace,” Graham Weston, Chairman and CEO of Rackspace said. “We added thousands of new customers, including one of our largest ever, and we saw solid growth from existing customers like Under Armour, SunPower and Alex and Ani. We generated a company record $20 million in incremental revenue in the quarter and revenue per server was an all time high. Total revenue grew 4.3 percent on a constant currency basis, which was the highest rate of growth that we’ve generated since the fourth quarter of 2012.”

Rackspace will chase the growing market of managed big data solutions, as well as of regions with rapid growth in cloud adoption, like Asia-Pacific. Rackspace also launched a DevOps Advisory Service and new features for its DevOps Automation Service on Tueday.

On May 5, just days before the SEC filing started the M&A furor, Rackspace hit its lowest stock price since Oct. 25, 2010, at $26.28.

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