Rackspace revenue misses as web hosting growth slows

Tue Feb 12, 2013 7:04pm EST
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By Chandni Doulatramani

(Reuters) - Web hosting company Rackspace Hosting Inc reported a 25 percent rise in quarterly revenue that narrowly missed analysts' estimates, sending its shares down nearly 10 percent in extended trading on concerns that growth is slowing.

San Antonio, Texas-based Rackspace said revenue grew 5 percent in the fourth quarter over the preceding three-month period, the fifth consecutive quarter in which sequential growth has slowed.

"Clearly, growth is slowing. That's probably the primary driver as to why the stock is off so much," Stephens Inc analyst Barry McCarver said.

Web hosting companies like Rackspace and competitors Equinix and Internap Network Services Corp own or lease space on a server, typically housed in data centers, warehouses lined wall-to-wall with powerful storage servers.

Many companies have migrated to hosting their applications in "the cloud" - using the Internet to provide software, computing power and data storage - as a cheaper alternative to in-house resources in a slow-growth economy.

Rackspace Chief Financial Officer Karl Pichler cited the transition to the company's next-generation cloud as the main reason for the slowdown in growth.

He said most customers would be able to switch within three to six months to the next-generation cloud, which will include a more sophisticated operating system than the first-generation cloud that it will replace.

"It is just a better software to run cloud applications on," Pichler told Reuters. He said migration to the next-generation cloud would be voluntary.   Continued...