Cloud Storage Channel Feature
Shares of Rackspace Soar as Cloud Revenue Climbs
Shares of hosting company Rackspace (News - Alert) soared this week, following its fourth quarter earnings statement, which showed the firm crossed the $1 billion revenue mark in 2011.
Reuters said shares in the cloud-computing services provider were up about 10 percent, near 54.50, in morning trading earlier this week after the San Antonio, Texas-based company reported fourth-quarter results that beat Wall Street predictions.
Net revenue for the fourth quarter of 2011 was $283 million, up 7.1 percent from the previous quarter and 32 percent from the fourth quarter of 2010, Rackspace reported on Feb. 13. Net revenue for the fourth quarter of 2011 was negatively impacted by currency exchange rates when compared to the third quarter of 2011 by $1.6 million and negatively impacted compared to the fourth quarter of 2010 by $0.4 million, Rackspace said.
Analysts that previously predicted more bearish financial results have upped the ante, reversing their less bullish outlook. For example, Benchmark Co. analyst Clayton Moran raised his rating on the stock to a buy from a hold, Investors.com reported, predicting the company will move to $60 a share.
“As the pure-play cloud leader with robust operating momentum and 30 percent organic EBITDA growth, we believe the stock can go higher,” Moran wrote in a report Tuesday. “We raise our estimates to reflect sustained high growth and solid margins. Rackspace’s three-year projected annual EBITDA (earnings before interest, taxes, depreciation and amortization) growth rate is about 30 percent. The stock is trading at 15x 2012E EBITDA of $462 million. Our new price target is $60 per share, or 18x 2012E EBITDA.”
However, other analysts aren’t painting such a rosy picture. Cowen analyst Colby Synesael said that, while the opportunity for Rackspace to emerge as one of the dominant cloud providers remains strong, “we are increasingly concerned about already extended valuation that may limit near-term upside.”
In its earnings statement on Feb. 13, Rackspace CEO Lanham Napier said the company made “tremendous” progress in 2011.
“During the year we accelerated our revenue growth rate for the second year in a row and crossed one billion dollars in annual revenue, while simultaneously improving margins and returns. In short, we made tremendous progress towards our long-term goal of becoming the service leader in cloud computing,” said Napier in a company statement.
Rackspace said its total server count increased to 79,805, up from 78,717 servers at the end of the previous quarter, and total customers increased to 172,510, up from 161,422 at the end of the previous quarter.
Erin Harrison is Executive Editor, Strategic Initiatives, for TMC, where she oversees the company's strategic editorial initiatives, including the launch of several new print and online initiatives. She plays an active role in the print publications and TMCnet, covering IP communications, information technology and other related topics. To read more of Erin's articles, please visit her columnist page.
Edited by Rich Steeves
