Stocks eked out tiny gains on Tuesday. The Dow Jones Industrial Average (^DJI 0.54%) and the S&P 500 (^GSPC 0.97%) indexes ticked up by just a few points to stay near record highs:
Today's stock market:
|
Index |
Percentage change |
Point change |
|---|---|---|
|
Dow |
0.02% |
4 |
|
S&P 500 |
0.04% |
1 |
Source: Yahoo Finance.
Plenty of individual stocks made major moves as the broader market churned in place, though. Rackspace (RAX) and Wayfair (W 4.80%) each posted big swings after announcing quarterly earnings results.
Rackspace's profitability
Cloud services-specialist Rackspace jumped 7% following a second-quarter earnings report that showed solid progress at improving sales, earnings, and profitability. Revenue rose 7%, net income spiked by 75%, and net profit margin expanded to 7% of sales from 6% in the year-ago period. The company's operating income also rose by 33% after accounting for a one-time gain from its sale of Cloud Sites operations.
Image source: Getty Images.
Management described an industry that's benefiting from strong growth right now. "Demand is scaling rapidly for the expertise and managed services that we provide," CEO Taylor Rhodes said in a press release. "We demonstrated continued revenue growth, along with higher profitability, higher capital efficiency, strong operating cash flow, and record free cash flow."
Rhodes and his team project keeping up that impressive momentum in the coming months. Sales should expand at a 6% pace in the third quarter and by nearly 8% for the full year. Adjusted profit margin, meanwhile, should weigh in at 34% of sales, which is right on par with the prior two fiscal years of results. Executives had no comment on the rumors that the company is in advanced talks to take itself private for a buyout price of around $4 billion.
Wayfair's spiking expenses
Wayfair stock plunged 20% after the online retailer posted strong quarterly sales growth matched with an even bigger jump in spending. Revenue spiked 60% higher, as the home-furnishings specialist soaked up market share.
Wayfair's $787 million of sales, in fact, edged consensus estimates calling for $782 million. "We are achieving strong momentum across the business as Wayfair continues to take between a third and forty percent of the online dollar growth in our categories in the U.S.," CEO Niraj Shah said in a press release.
It's proving extremely costly to gain that foothold in the market, however. The retailer's operating costs soared higher by 70%, as Wayfair shelled out on new hires and on capital improvements to expand its geographic reach, and speed up delivery times. As a result, net loss more than doubled, to $48 million, and cash flow swung from an $11 million inflow last year to a $19 million outflow this quarter.
Image source: Wayfair.
Shah and his executive team can point to improving customer metrics like higher average-order spending, the increased incidence of repeat orders, and a growing base of active customers, as signs that the spending is positioning the business for solid profit growth in the future.
Still, investors aren't seeing hard evidence that Wayfair can achieve its long-term goal of 26% gross profit margin and 9% adjusted profit margin. Both figures took a step in the opposite direction this quarter, falling to 24% and -3%, respectively.
