Bloomberg News

Rackspace Rises as Profit Beats Estimates: San Francisco Mover

February 15, 2012

Feb. 14 (Bloomberg) -- Rackspace Hosting Inc., the biggest competitor to Amazon.com Inc. in the market for Web-based data centers, reached the highest in more than three years after sales and profit topped analysts’ estimates.

Rackspace shares climbed 8.9 percent to $53.60 at 9:32 a.m. in New York. Earlier it touched $54.09 for the highest intraday price since Aug. 8, 2008, when the company first traded publicly.

The company runs a fleet of data centers, letting customers store their websites and applications on its servers. It competes with the Amazon Web Services business in the public- cloud market, where customers rent computing power along with related services. Rackspace’s revenue in that area jumped 86 percent last quarter to $58.5 million, the San Antonio-based company said yesterday in a statement. Sales in the traditional dedicated server business, where the company manages specific machines for customers, rose 23 percent to $224.8 million.

Net income jumped 85 percent to $25 million, or 18 cents a share, from $13.5 million, or 10 cents, a year earlier. Revenue climbed 32 percent to $283.3 million. Analysts on average predicted profit of 15 cents and sales of about $281 million, according to a Bloomberg survey.

The stock, which debuted in 2008, has surged more than 10- fold in value in the past three years. That’s more than Apple Inc. can say -- its stock is up 407 percent during that stretch. In fact, not a single company in the S&P 500 has matched Rackspace’s three-year performance, with Wyndham Worldwide Corp. coming the closest, at 959 percent.

More Customers

Rackspace’s customer tally increased 6.9 percent from the previous quarter to 172,510. Its installed based rose 1.2 percent per month in the period, compared with growth of 0.6 percent a year earlier and 0.9 percent in the third quarter. As that number grows, Rackspace’s margins increase because the company is able to sell more profitable services to existing customers, said Chief Executive Officer Lanham Napier.

“The longer we serve them, the more valuable and profitable they become,” Napier said yesterday in a conference call. “The installed base climbing is a tailwind for profitability.”

The company’s margin before interest, taxes, depreciation and amortization increased to 36.1 percent from 33.5 percent a year earlier.

--Editors: Nick Turner, Tom Giles

To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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