Rackspace Stocks Falter Amid Quarterly Results Announcement and CEO Departure

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It has been an eventful week for Rackspace Hosting. In a surprise announcement, Lanham Napier said he will be stepping down as CEO, a title he has held since 2006. This came at the same time as the company released its latest financial results that have largely disappointed investors.

The financial results for Q4 2013, the quarter ending December 31, 2013, saw $21 million in net income, up 27.5 percent from the previous quarter but down 30 percent from Q4 2012. And adjusted earnings (EBITDA) were hurt by non-cash charges relating to data center operating leases. However, net revenue for Q4 2013 totaled $408 million, up five percent from the previous quarter and 16 percent from Q4 2012.

Still, many traders have been been disappointed with these results with Rackspace shares sharply falling following the Monday announcement, and resting at around 16 percent lower in value than the same time last year.

Investor site TheStreet had a mixed reaction to the quarterly report: “The company’s strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and reasonable valuation levels. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity.”

Days prior to the earnings announcement, Morgan Stanley analyst Lisa Lam said that Rackspace has had strong past managed hosting growth and there’s potential for it to be the leader in the field, yet competitors such as Amazon, Google, IBM, and Microsoft are ramping up their efforts to compete for businesses trying to outsource applications to the cloud.

Napier Retires

An early “Racker”, Lanham Napier joined Rackspace in April 2000. Under his leadership, Rackspace was able to grow from a privately held company with fewer than 100 employees to a publicly traded company with more than $1.5 billion in 2013 revenue and more than 5,000 employees spread across a dozen worldwide locations.

Among his many distinctions, Napier even made Esquire’s list of most inspiring CEOs partly for promoting a policy of keeping both customers and employees happy, a philosophy for which the company is known.

Napier has said he is leaving his role as head Racker to invest in and advise other entrepreneurial companies.

Rackspace co-founder, executive chairman, and former CEO Graham Weston is immediately taking over as interim CEO while the company works to identify a long-term Rackspace CEO.

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