Although Rackspace experienced growth during the fourth quarter of 2012, its sales estimates for the quarter were lower than expected—net revenue was up 5 percent from the previous quarter and 25 percent over the previous year's fourth quarter, but that wasn't enough to keep Rackspace's stock value from slipping after the financials were announced Feb. 12.
"We are very pleased with the financial results we have delivered in 2012. Even more importantly, we are excited about the growth opportunities that our new set of open cloud products will provide us in the future," said Karl Pichler, Rackspace's CFO, in a prepared statement.
Although profit was up 17 percent year-over-year, apparently Wall Street wasn't all that happy with Rackspace's growth. The company's shares fell 18 percent the day after it announced its numbers.
Of its Q4 sales, 24.7 percent came from cloud computing products, which was up from 20.6 percent a year earlier. That shows grow in the company's cloud business, but reports following the announcement of Rackspace's financials indicate that cloud growth has been slowing. If that's true, Rackspace's cloud business may find a continued slowing of revenue growth.
Industry pundits expected Rackspace could sustain 25 percent revenue growth in cloud—and possibly even higher in 2013. Those hopes may have been dashed with the Q4 financials.
Rackspace certainly had its wins in 2012, though. The company spun off OpenStack into its own organization in September and then continued to build on its success in OpenStack and open cloud through the fourth quarter.
"During 2012 we made significant investments across the business to bolster our systems, products and service delivery capabilities. One of the most important projects we completed in 2012 was the launch of our Open Cloud platform," said Lanham Napier, Rackspace's CEO, in a prepared statement. It's the area in which Rackspace's growth is experiencing the greatest gains.
The company also made significant inroads into the retail market. During its financials call, Rackspace outlined success in its attempts to lure retail customers away from Amazon Web Services (NASDAQ: AMZN). For instance, it noted it had landed Staples as a cloud customer.
Whether Rackspace can gain additional momentum to meet Q1 2013 expectations is, of course, unknown, but we'll have to wait to see what the first quarter has in store for Rackspace.