Rackspace Rises on Solid Earnings Beat

Rackspace Hosting, Inc. (NYSE: RAX) reported first-quarter financial results after the markets closed on Monday. The company had $0.37 in earnings per share (EPS) on $518 million in revenue compared to consensus estimates from Thomson Reuters that called for $0.22 in EPS on $518.95 million in revenue. The same period from last year had $0.20 in EPS on $480.20 million in revenue.

In terms of guidance, Rackspace expects revenues to be in the range of $519 million to $524 million for the second quarter, and $2.08 billion to $2.16 billion for the full year. There are consensus estimates that call for revenues of $523.57 million in the second quarter and revenues of $2.12 billion for the full year.

During this quarter Rackspace launched its Private Cloud powered by Red Hat, which delivers OpenStack private clouds as-a-service using the Red Hat Enterprise Linux OpenStack Platform. The new offering expands the Rackspace OpenStack-as-a-Service product portfolio, further extending the company’s strategy to deliver the most reliable and easy-to-use OpenStack private and hybrid clouds in the world.

In the quarter, cash flow from operating activities was $156 million and capital expenditures were $79 million. On the books, cash and cash equivalents totaled $534 million compared to $484.7 million at the end of 2015.

Taylor Rhodes, President and CEO of Rackspace, commented:

We’ve continued to build market power behind our managed cloud strategy. Demand for Rackspace’s managed services for AWS, the Microsoft cloud, and our OpenStack private cloud is scaling rapidly. Collectively, we now deliver expertise and support for more than 400 customers on these cloud platforms, including some of the world’s largest companies and leading brands such as Digitas. While we are experiencing hyper-growth in these new offers, we also continued to reduce our capital intensity and boost our free cash flow.

Shares of Rackspace closed Monday up 1.1% at $22.54, with a consensus analyst price target of $26.71 and a 52-week trading range of $15.05 to $54.07. Following the release of the earnings report, the stock is up 2% at $23.00 in the after-hours trading session.

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