Rackspace Hosting Inc. (NYSE: RAX) is due to report second-quarter results on Monday after the close of trading. After reporting first quarter earnings in May, Rackspace announced that it had hired Morgan Stanley to evaluate its strategic proposals, alternatives and long-term strategy. This resulted in an a 22% spike in the share price at the time. Rackspace rode a good wave initially, but shares have since settled back down.
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The web hosting and cloud company has consensus estimates from Thomson Reuters of $0.16 earnings per share and $436.9 million in revenues. A year ago, the quarterly numbers were earnings of $0.16 per share and revenue of $375.85 million. Estimates for the next quarter report are $0.17 earnings per share and $454.2 million in revenues.
Rackspace is technically not a systemic company that will create moves in the broader market, but as a leader in hosting and cloud operations it can spill over into many technology and cloud companies. Rackspace has admitted that the market for cloud hosting has become incredibly commoditized and competitive. Its goal now is to focus specifically on the customer. Selling services and support to clients that don’t fully understand cloud capabilities has accelerated the company’s customer growth. Realistically, it seems as though the company does not plan on going to war with cloud giants such as Google Inc (NASDAQ: GOOG) and Amazon.com Inc (NASDAQ: AMZN) on their terms.
Another consideration that remains unanswered — perhaps the main consideration — is what exactly is happening with Rackspace’s exploration of alternatives. We saw reports in July that Rackspace was considering doing a go-private deal with a private equity firm. Unfortunately, we have heard little worth noting since then. And in May there was a report showing three potential buyers, but nothing has yet been seen.
Rackspace’s chart is representative of a stock that has fallen from grace. Its 200-day moving average is all the way up at $35.81, and the 50-day moving average is up at $34.01. With Rackspace trading around $30.65, its 52-week range is $26.18 to $54.20, and its consensus price target from analysts is $41.30.
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