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Shares of Rackspace Hosting (NYSE:RAX) have shot 14% higher today after the cloud-hosting pioneer reported better-than-expected earnings following Monday's closing bell and initiated a major share buyback program.
Why it's happening
Rackspace's revenue of $459.8 million narrowly bested Wall Street's consensus of $458.4 million, and its earnings of $0.18 per share -- a 64% year-over-year improvement -- also topped the analyst consensus of $0.16 in EPS. Rackspace also boosted its revenue per server to $1,405 (for 110,453 servers) from $1,375 per server in the second quarter. Rackspace also plans to implement a $500 million share buyback program, of which $200 million of that program is to be undertaken this year.
Looking ahead, Rackspace expects revenue in the range of $469 million-$476 million for the fourth quarter, with adjusted EBITDA margin in the 33%-35% range. Analysts had expected $476.5 million on the fourth quarter top line, so this projection is a bit underwhelming, but investors seem willing to overlook that in favor of the buyback, which will take approximately 8% of its shares off the market at current prices.
Alex Planes 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.