AP News

Ahead of the Bell: Rackspace


NEW YORK (AP) — Shares of Rackspace tumbled before Tuesday's opening bell after the computing services company announced the departure of its CEO and issued a lackluster outlook for 2014.

In premarket trading, Rackspace Hosting Inc. shares fell $4.75, or 11.8 percent, to $35.61.

Rackspace said late Monday that CEO Lanham Napier, 43, is also stepping down from its board, but will continue as a consultant to the company for a few months. It said he is stepping away from leadership of public companies and plans to invest in and advise other companies.

Graham Weston, 49, will replace Napier while Rackspace looks for a long-term replacement. Weston is the company's co-founder, former CEO and its current chairman.

Napier had been CEO of San Antonio-based Rackspace since 2006 and a director since 2001.

The company, which provides data storage and other services for companies and groups, also on Monday, announced a 30 percent drop in quarterly profit. But its per-share earnings matched Wall Street expectations and its revenue was higher than expected.

In its conference call with investors, Rackspace also projected first-quarter revenue growth of between 2 percent and 3.5 percent. For the full year, the company expects revenue growth of between 15 percent and 18 percent.

Pacific Crest Securities analyst Michael Bowen called the 2014 guidance "disappointing," adding that Napier's departure also creates risk for investors. He backed his "Sector Perform" rating for the stock.

Jefferies analyst Mike McCormack said the quarter's results "failed to deliver a turn-around that bulls have been waiting for." Citing the uncertainty surrounding the stock, he backed his "Hold" rating, but cut his price target by $3 to $35.


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