Why Rackspace Hosting, Inc. Shares Rumbled Higher Today

Is Rackspace Hosting's jump meaningful or just another movement?

May 13, 2014 at 2:28PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Rackspace Hosting (NYSE:RAX) jumped nearly 15% Tuesday morning after the managed cloud hosting specialist released better-than-expected first-quarter results.

So what: Quarterly revenue rose 16% year over year to $421 million, near the top end of its previous guidance and helped partially by a $6.6 million positive impact from currency exchange rates. This translated to a roughly 6.7% decline in net income over the same period to $25.5 million, or $0.18 per share. However, analysts expected net income of just $0.12 per share on sales of $419.5 million.

Better yet, Rackspace expects second-quarter revenue of $434 million to $440 million, the mid-point of which is also well above analysts' expectations for Q2 sales of $435.5 million.

Now what: Rackspace chairman and CEO Graham Weston added, "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. [...] Each of these customers values our managed cloud approach and chose us over providers of less expensive unmanaged infrastructure." 

To be sure, Rackspace's total server count increased sequentially this quarter by more than 2,300 servers to 106,229. This solid beat on both the top and bottom lines also allows weary investors to breathe a long-overdue sigh of relief, especially after the last two quarters served up little more than disappointment.

Shares don't exactly look cheap trading around 34 times next year's expected earnings. But with the stock still trading down 23% so far this year -- and keeping in mind those estimates will likely climb as analysts have time to fully digest today's news -- I think Rackspace Hosting is now worthy of consideration for patient, long-term investors.

Are you ready to profit from this $14.4 trillion revolution?
But Rackspace also isn't the only great Internet tech play out there. Let's face it: Every investor wants to get in on revolutionary ideas before they hit it big. Like buying PC maker Dell in the late 1980s, before the consumer computing boom. Or purchasing stock in e-commerce pioneer Amazon.com in the late 1990s, when it was nothing more than an upstart online bookstore. The problem is, most investors don't understand the key to investing in hyper-growth markets. The real trick is to find a small-cap "pure play" and then watch as it grows in EXPLOSIVE lockstep with its industry. Our expert team of equity analysts has identified one stock that's poised to produce rocket-ship returns with the next $14.4 TRILLION industry. Click here to get the full story in this eye-opening report.

Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Rackspace Hosting. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers