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Sales up, profit up, but no champagne corks popping at Rackspace

Why so glum? Oh yeah, public cloud. Ha ha ha

4 arrows signs in arrow on wooden wall

The gods of tech sales finally smiled on Rackspace in calendar Q2 of 2015. But the biz isn't celebrating just yet, because it's public cloud arm is stuck in first gear.

The cloud server-hosting biz reported an 11 per cent year-on-year growth in turnover to $489.4m (£314.2m) in the three months ended 30 June.

Total costs and expenses jumped 9.4 per cent to $445.7m (£286.2m), leaving an operating profit of $43.7m (£28.1m) versus $33.9m (£21.8m) in the same period a year ago. Net profit crossed the line at $29.2m (£18.7m), up from $22.5m (£14.4m).

Rackspace claimed that spend among the 50 biggest customers grew at more than twice the rate of the overall business, that it set a record for new bookings worth $100k or more for its private cloud biz, and that it expanded its managed cloud strategy to support multiple public clouds.

But CEO Taylor Rhodes said he warned investors during the Q1 conference call that full-year guidance was dependent on one criteria that he confirmed was not met – expanding its own public cloud revenues.

"That expectation has not been fulfilled," he said. "While our overall sales momentum did pick up in the latter part of Q2, our public cloud growth remained slow throughout the quarter."

"The root causes of the softness in our first half execution can be separated into marketing and sales issues and product challenges in our public cloud," Rhodes added.

The issues were "exacerbated by a talent gap" caused by the strategic review in 2014 when some staff left amid the uncertainty. The sales, marketing, and engineering teams were most impacted, the exec said.

The issues are largely dealt with or are in the process of being sorted, said Rhodes, but due to the Q1 malaise, full-year revenue is estimated to expand 12 to 14 per cent in constant currency rather than the 14 to 18 per cent first estimated, and earnings before interest, taxes, depreciation, and amortization (EBITDA) margin is now expected to be between 33 and 34 per cent instead of 33 and 36 per cent. ®

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