Rackspace Takes $1 Billion Stock Hit on Sales Forecast

Updated on

Rackspace Hosting Inc., the cloud-computing and website hosting company, fell the most in eight months after releasing a sales outlook that was below analysts’ estimates.

Rackspace, which counts companies from Tinder Inc. to Domino’s Pizza Inc. as customers, dropped 14 percent to $45.96 at the close in New York, wiping out more than $1 billion in market value. The stock has fallen 1.8 percent so far this year. Rackspace posted first quarter earnings after the close yesterday that beat analysts’ estimates, while sales narrowly missed projections.

Rackspace’s forecast for second-quarter sequential revenue growth of 1.5 percent to 2.5 percent was well below analysts’ estimates, Joshua Yatskowitz, a Bloomberg Intelligence analyst wrote in a note.

Chief Executive Officer Taylor Rhodes attributed the disappointing growth outlook to the timing of some large deals.

“As we continue to pursue and win more large enterprise deals, the timing and longer implementation cycles of these deals will impact our quarterly results from time to time,” Rhodes said, according to the transcript of a conference call.

The company also faces a “one-time revenue headwind in the second quarter” because of the relocation of a major client from the U.K. to Africa, he said.

Rackspace reiterated its full-year guidance even with the reduced expectations for the current quarter. Sequential growth would have to rise 4 percent in the third and fourth quarters to reach the bottom of the forecast, according to Yatskowitz.

“This may be a reach, though the company’s outlook suggests it may be positioned to maintain growth if it can implement larger deals more quickly,” he wrote.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE