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Source: Rackspace.

Rackspace Hosting (NYSE:RAX) just reported results for the first quarter of 2014. Reacting to the news, investors pushed shares as much as 12.5% higher in after-hours trading.

The server hosting and cloud computing expert saw sales rise 16% year-over-year to $421 million. GAAP earnings rose 5% to $0.19 per diluted share. Analysts were expecting earnings of just $0.12 per share on $420 million in sales. Looking ahead, Rackspace set the midpoint of its second-quarter revenue guidance just above Street targets, at $437 million.

Rackspace increased its installed server count by 2.2%, compared to the previous quarter. Average monthly revenue per server increased by 1.1%.

Free cash flows jumped from $8.2 million in the first quarter of 2013 to $57 million this time. The surge was driven by higher earnings, a $30 million drop in accounts receivable balances, and lower capital expenses.

"Our first quarter revenue growth came in as expected and we expect growth to improve in the second quarter," said Rackspace CEO Graham Weston in a prepared statement. "We are encouraged by qualitative factors, including the thousands of new customers we added in the quarter, including one of the largest we've ever landed."

The stock is trading more than 20% lower year-to-date, even after the generous after-hours surge. Critics worry about intense competition and budding price wars in the cloud computing sector.

Anders Bylund owns shares of Rackspace Hosting. The Motley Fool recommends Rackspace Hosting. Try any of our Foolish newsletter services free for 30 days.

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