Rackspace Hosting Earnings: Margins Expand, Misses Street Estimates

Rackspace Hosting Inc. (NYSE:RAX) reported higher profit for the first quarter as revenue showed growth. Rackspace Hosting is a provider of hosting and cloud computing services.

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Rackspace Hosting Earnings Cheat Sheet for the First Quarter

Results: Net income for Rackspace Hosting Inc. rose to $23 million (10 cents per share) vs. $13.8 million (17 cents per share) in the same quarter a year earlier. This marks a rise of 66.4% from the year-earlier quarter.

Revenue: Rose 30.9% to $301 million from the year-earlier quarter.

Actual vs. Wall St. Expectations: Rackspace Hosting Inc. fell short of the mean analyst estimate of 17 cents per share. Analysts were expecting revenue of $300.5 million.

Quoting Management: “While we’ve made a lot of progress so far in 2012, we have much more to do. We are executing through a very important platform shift to our next generation cloud, and we need to make this experience incredible for our customers. Massive technology disruptions like this create once in a lifetime opportunities for companies to seize the moment, take the initiative, and lead the revolution. Our goal is to lead the revolution,” said Lanham Napier, chief executive officer.

Key Stats:

The company has seen double-digit year-over-year percentage revenue growth for the past five quarters. Over that span, the company has averaged growth of 31.2%, with the biggest boost coming in the third quarter of the last fiscal year when revenue rose 32.5% from the year earlier quarter.

Last quarter marked the fifth consecutive quarter of gross margins expanding, as the company’s gross margin expanded 23.5 percentage points from the year-earlier quarter to 93.2%. Over that span, margins have grown, on average, 6.2 percentage points per quarter on a year-over-year basis.

The company has now seen its net income increase for three consecutive quarters. In the fourth quarter of the last fiscal year, net income rose 85% and in the third quarter of the last fiscal year, the figure rose 69.2%.

The company fell short of forecasts after beating estimates in the previous two quarters. In the fourth quarter of the last fiscal year, it topped the mark by 3 cents, and in the third quarter of the last fiscal year, it was ahead by one cent.

Looking Forward: Analysts have a more positive outlook about the company’s results for next quarter. The average estimate for second quarter is 19 cents per share, an increase from 18 cents sixty days ago. At 79 cents per share, the average estimate for the fiscal year has fallen from 81 cents ninety days ago.

(Company fundamentals provided by Xignite Financials. Earnings estimates provided by Zacks)

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