Rackspace Hosting, Inc. RAX reported Q4 earnings after the market close on Tuesday.
Net revenue for the fourth quarter was $472 million, below estimates of $473.98 million, up 15.8 percent from the fourth quarter of 2013. On a constant currency basis, net revenue grew 16.4 percent from the fourth quarter of 2013.
Earnings per share came in at $0.26, above estimates of $0.19 and the $0.14 reported in the year ago period.
Net income was $36.9 million, for a margin of 7.8 percent, up from 5.1 percent in the fourth quarter of 2013.
Adjusted EBITDA was $165 million, up 25.3 percent from the fourth quarter of 2013.
"The strong growth and improving margins that we've posted demonstrate the traction that we're gaining as the leader of the managed cloud segment," said Taylor Rhodes, president and CEO of Rackspace.
The company guided GAAP revenue in the range of $477 million to $484 million for Q1, below estimates of $490.51 million. The company also expected adjusted EBITDA margins to be between 32 percent and 34 percent for the first quarter.
For the full year 2015, Rackspace expected revenue to grow between 14 percent and 18 percent on a constant currency basis. Based on foreign currency movements to date, Rackspace anticipated a 200 basis point headwind to revenue growth for the full year of 2015, resulting in GAAP revenue in the range of $2.0 billion to $2.1 billion. Analysts expected $2.08 billion. The company expected adjusted EBITDA margins to be between 33 percent and 36 percent for the full year.
Analysts had commented on the company ahead of the earnings release. Below are some highlights of what analysts thought of the stock.
J.P. Morgan analyst Philip Cusick believed that “RAX’s managed hosting with service level guarantees is valuable to SMBs that don’t have the financial/IT/human resources to manage their own cloud applications, but the public cloud side could face pricing pressure from commodity datacenter providers.” The firm maintained a Neutral rating and indicated that expectations for a strong Q4 are already built into the share price.
Needham & Company analyst Richard Kugele maintained a Hold rating on the stock and noted that last year, the company attempted to explore “strategic alternatives,” but no buyers emerged. Kugele believed “the valuation on RAX is excessive and has been inflated by the company’s buyback actions, which make use of funds” that “would have been better suited executing M&A.”
Credit Suisse analyst Sitikantha Panigrahi maintained an Outperform rating and $57 price target. Panigrahi estimated Q4 revenue at $475.4 million and an EBITDA margin of 34 percent.
D.A. Davison analyst Mark Kelleher expected revenues of $474.0 million, adjusted EBITDA of $161.3 million and GAAP EPS of $0.21. The analyst maintained an Underperform rating, $40 price target and anticipated “steady top line and EBITDA growth” for the company “over the next several years.”
Following its earnings release, Rackspace Hosting, Inc. traded at $47.99 in the after hours session, down 3.77 percent.
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