Rackspace delivers solid Q2, allays AWS concerns

Analysts have been closely watching Rackspace's results due to concerns about Amazon Web Services and its price cuts.
Written by Larry Dignan, Contributor

Rackspace's second quarter was better than expected and could allay concerns about customer disruption over migrations to the OpenStack cloud platform and pricing pressure from Amazon Web Services.

The company reported second quarter earnings of $22 million, or 16 cents a share, on revenue of $376 million, up 18 percent from a year ago. Wall Street was looking for second quarter earnings of 13 cents a share on revenue of $372.25 million. Shares surged 11 0percent in after hours trading. 

Analysts have been closely watching Rackspace's results due to concerns about Amazon Web Services and its price cuts. The other issue for Rackspace is whether it can boost its OpenStack customers and fix sales execution issues. Rackspace has touted enterprise wins with the likes of Mazda, Fidelity and GE and moved to allay AWS pricing concerns.

In addition, Rackspace launched its private cloud software, hired a new chief marketing officer and bolstered its sales team.

Related: Amazon Web Services, Windows Azure top cloud dev choices, says survey | Happy Birthday OpenStack! How did you grow up so fast? | Rackspace takes aim at AWS' dedicated instances pricing

As for the outlook, Rackspace projected third quarter sequential growth of 2 percent to 3.5 percent, which would align with Wall Street's estimates for revenue of $386 million.

On a conference call with analysts, Rackspace CEO Lanham Napier positioned the company as one of the few that can deliver hybrid clouds with public and hosting services.

Napier said:

We believe the hybrid cloud architecture will be the best choice for the vast majority going forward. This is why we have made the choice to invest heavily in our hybrid cloud capabilities. Hybrid cloud differentiates us in the market and that is where we are winning new business. Many competitors try to push customers into a one-size-fits-all solution and persuade them to run their applications -- rather than one-size-fits-all we offer the best fit for each customer. We offer the solution that best meets each customers needs and by using the mix of the servers, we can optimize the infrastructure that underlies the customers applications and deliver superior performance, reliability and cost efficiency as they moved to a cloud world.

Napier also addressed public cloud pricing and perception.

The general perception in the market is that public cloud is the cheapest way to write applications but that is rarely true in the cost for performance basis. There are multiple factors that go into choosing the best infrastructure for your application including performance, reliability, technical support, security, price and ease of use. For many workloads dedicated infrastructure may be the best option. For variable workloads such as e-commerce -- for steadier workloads such as many back-office functions private cloud may be preferable. For most customers we believe the answer will be to rent each workload where it runs fast. We don't think most IT buyers understand this dynamic and our challenge is to make sure this information is more widely disseminated.

Rackspace said its second quarter server count increased to 98,884, up from 94,122 in the first quarter. The metrics from Rackspace show that the company is growing public cloud revenue, but overall sales growth is slowing. The average monthly revenue per server is stable.



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