Rackspace Earnings: Cloud Computing, Services Reality Check
Everybody hang on: Rackspace (NYSE: RAX) Q1 2012 earnings suggest the cloud computing market could be experiencing a reality check or a short-term correction. The good news for cloud services providers (CSPs): The cloud market is still experiencing double-digit growth, but all the hype and hoopla is experiencing serious scrutiny this week.
For its Q1 2012, Rackspace’s revenue was $301 million, up 31 percent from Q1 2011. Net income was $23 million, up 58 percent from Q1 2011 — impressive, but not good enough to meet Wall Street’s lofty expectations. That reality sent Rackspace shares down about 10 percent today (May 8, 2012).
The Rackspace OpenStack Bet
Despite disappointing investors this week, Rackspace CEO Landham Napier insists that the company can still “lead the revolution” in cloud c0mputing. Part of that strategy involves OpenStack, an open source cloud computing platform that Rackspace has openly and aggressively championed.
During an earnings call yesterday, Napier said:
“This year, our most essential development plans revolve around the open-source platform, OpenStack. OpenStack will be the key technology that will power new products at higher service levels on our next-generation cloud platform, and we believe OpenStack will be the foundation to support a much bigger and better business.”
Napier pointed to seven OpenStack opportunities that Rackspace will specifically promote:
- Cloud Servers Powered by OpenStack
- Cloud Databases Powered by OpenStack, including MySQL support
- A cloud computing control panel for customers
- Cloud Networks Powered by OpenStack
- Cloud Block Storage Powered by OpenStack
- Cloud Monitoring
- Cloud Backup
Rackspace CFO Perspectives
Meanwhile, Rackspace CFO Karl Pichler said the company’s Q1 2012 dedicated cloud revenue was $237 million, up 23% from Q1 2011. Also public cloud revenue for the quarter was $65 million, up 75% from Q1 2011.
Still, Pichler conceded that Rackspace’s profit margins “tend to fluctuate from quarter to quarter because of a variety of factors, including revenue growth, hiring performance, and resource pricing. This is normal for our business, and we expect margins to continue fluctuating on a short-term basis.”
Simply put: Investors don’t like margin fluctuations, especially in a market (cloud computing) that’s supposed to offer predictable recurring revenues and somewhat predictable profits.
The Talkin’ Cloud Stocks Index, which tracks 20 cloud computing and cloud services companies, is fluctuating quite a bit this week. We’ll update the index with final weekly performance indicators after U.S. markets close on Friday, May 11.