Original URL: http://www.theregister.co.uk/2014/05/12/rackspace_q1_2014/

Yee-haw! Rackspace shares soar on – gasp – healthy results

New CEO? No problem! Except for slowing cloud growth, that is...

By Jack Clark

Posted in Financial News, 12th May 2014 21:40 GMT

When Rackspace's chief executive Lanham Napier shocked analysts with his resignation last quarter, things looked bad for the company. But its latest financial results indicate that the company has weathered the transition.

Napier's outgoing comments that the company's numbers looked "pretty darn formidable" have been borne out by Rackspace's latest quarterly earnings, which blew past analyst expectations.

The Texan hoster-turned-cloud-seller reported revenues of $419.53m on Monday for the first quarter of 2014, up 16 per cent from the same quarter a year ago, and a net income of $25m, down marginally from the same quarter a year ago's $27m. Earnings per share were $0.20 per share.

These figures beat Wall Street bean-counters' expectations of revenues of $419.53m and EPS of $0.12, sending the company's share price up over 12 per cent in after-hours trading.

Revenue for Rackspace's traditional business of dedicated hosting grew to $299.6m, up from $291m in the previous quarter. However, growth continued to slow for its strategically important business of public cloud, with the company reporting revenues of $121.3m, up 3.7 per cent on the previous quarter's $116.838m, which was up 7 per cent on its preceding quarter.

If public cloud doesn't start outpacing growth in Rackspace's traditional business, then the company could face some serious problems as customers who would have paid for its cloud go instead to Google, Amazon, or Microsoft, all of which have introduced price cuts to give them advantages over the company. The company's CTO, John Engates, told El Reg recently that Rackspace is "not a commodity cloud provider" and would not take part in this latest bout of margin-slashing.

Average monthly revenue per server inched up to $1,336, and the company had 106,229 servers deployed by the end of the quarter.

"We are encouraged by qualitative factors, including the thousands of new customers we added in the quarter, including one of the largest we've ever landed." said Rackspace's new chief Graham Weston in a canned statement . "We also added significant new workloads for existing customers. Our first quarter revenue growth came in as expected and we expect growth to improve in the second quarter."

The company expects revenues of between $434m and $440m during its current quarter. After going through a tough 2013, things are looking up for the company, but the slow growth of its public cloud shows that though it is prioritizing fanatical support for customers over price competitiveness with peers, that may not be sufficient to guarantee major growth. ®