Shares of Rackspace Hosting Inc. (RAX) have been on an uptrend since the company reported better-than-expected third-quarter earnings on Nov 10.
The cloud computing company’s third-quarter earnings of 18 cents not only beat the Zacks Consensus Estimate of 16 cents but also improved from 11 cents reported in the year-ago quarter.
The company’s top line of $459.8 million increased 18.3% year over year and beat the Zacks Consensus Estimate of $459 million. The company reported a sequential increase in server count from 107,657 to 110,453. Also, Rackspace’s revenue per server increased 2.2% sequentially to $1,405 per month.
Now coming to the operational metrics, Rackspace’s gross profit margin expanded 169 basis points (bps) to 68.9% primarily due to the higher revenue base. In dollar terms, gross margin increased 21.3% to $316.8 million.
The company’s operating margin expanded 167 bps, while operating expenses, as a percentage of revenues, remained flat on a year-over-year basis. In dollar terms, operating expenses increased 46.1% to $40.5 million.
Rackspace reported net income of $25.7 million which increased from $16.3 million reported in the year-ago quarter.
The company exited the third quarter with cash and cash equivalents of $349 million and generated $125 million as cash from operations. The company had free cash flow of $41 million. Management also initiated a $500 million share buyback program, of which $200 million is expected to be executed through accelerated share repurchase, while the remaining $300 million will be done by Nov 2016.
Rackspace also provided revenue guidance for the fourth quarter which is expected to range between $469 million and $476 million (mid-point $472.5 million). The Zacks Consensus Estimate is pegged at $474 million. For the fourth quarter, the company’s deal pipe line remains strong.
The company has large number of clients — recently reached 300k customers globally — and the partnership with Google (GOOGL) is expected to strengthen its position in the hybrid cloud computing market. Hybrid clouds comprise features of both public and private clouds and are much more secure than public ones.
However, competition in the Infrastructure-as-a-Service (IaaS) market is intense, particularly with players like Amazon (AMZN) and behemoths like Microsoft (MSFT) that are willing to price aggressively, which could remain a headwind.
Currently, Rackspace has a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment