Rackspace's Q3 earnings disappoint: Cloud price war fallout?
Rackspace delivered a mixed third quarter on Monday as earnings fell short of expectations even as revenue came in better than expected.
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The company reported third quarter earnings of $16 million, or 11 cents a share, on revenue of $389 million, up 16 percent from a year ago. Wall Street was looking for earnings of 16 cents a share on revenue of $387.5 million.
Rackspace said that its net profit margins for the third quarter were 4.2 percent, down from 6 percent in the second quarter and 8.1 percent from a year ago.
Add it up and Rackspace's results won't calm those who argue that the company is going to struggle amid a cloud price war. Amazon Web Services frequently cuts prices and Microsoft Azure has also joined the party.
As for the outlook, Rackspace projected fourth quarter revenue between $400 million and $408 million. Wall Street was looking for earnings of $403.3 million. Rackspace CEO Lanham Napier said on a conference call that the company's dedicated hosting business is improving and the pipeline is building for hybrid cloud deployments.
Napier added that the performance cloud server launch will also boost the company's business. When asked about Rackspace's profit margins, Napier said:
We are in an investment phase. The ultimate outcome of these investments is to accelerate our growth. We are making those investments ahead of the growth today.
By the numbers, Rackspace's public cloud business continues to grow as revenue topped $108.4 million in the third quarter. Dedicated hosting revenue was $280.2 million.