Rackspace Kills the Cloud with Earnings (RAX, SKYY, EQIX)

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Rackspace Hosting, Inc. (NYSE: RAX) is one of our top earnings this week because we think that this may set up the tone for how “The Cloud” stocks are received by investors this week. So far, that answer to any receptions is “not too good.”

The online and remote data and site hosting company reported that its first quarter’s revenue rose by 6% year over year to $301 million. The company earned $0.17 EPS and we had the most recent data from Thomson Reuters indicating earnings of about $0.17 EPS on about $300 million in sales.

Total server count rose to 82,438 up from 79,805 servers at the end of the previous quarter, and total customers rose from 172,510 to 180,866 in the quarter. The company also said that the transition to the next generation of the cloud is causing delays to orders.

Guidance was not offered in the press release, and we are considering this as unfinished business until such guidance is known. Shares closed down 1% at $57.80 against a 52-week range of $30.34 to $60.55, and the after-hours reception has shares trading down 12% at about $50.90

Rackspace is only listed as a 4% weighting in the First Trust ISE Cloud Computing Index (NASDAQ: SKYY), but that is actually the fourth-largest holding of that ETF.

Equinix, Inc. (NASDAQ: EQIX) also provides protection and connection services that overlaps, but we have not seen any relative pin action, even though these two are in size and high-flyer earnings multiples.

JON C. OGG

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