Rackspace Q4 2013 Earnings Review

Rackspace hosting (NYSE:RAX) announced its Q4 2013 numbers yesterday (Feb 11) after market-hours. The company reported solid topline growth, beating analyst consensus estimates on topline as well as bottom line. We highlight the Q4 2013 performance and other key developments.

Q4 2013: Rackspace report solid growth

The company reported solid topline growth of 15.6% Y/Y revenue growth and earnings of 14 cents per share, down from 21 cents reported in Q4 2012. However, the fall in earnings was along expected lines as the company was expected to continue with its large scale investment into the business.

The company’s aggressive spending continued to pressurise margins as Sales and marketing expenses (28% Y/Y) and research & development (47% Y/Y) grew faster than the revenue resulting in 6.7% fall in operating margins and 4.4% fall in the adjusted EBITDA margins.

The topline growth and margin contraction was along expected lines, as the company continued its investment. However, the quarter saw the adjusted free cash flow of $15.3 million fall below the Net Income of $20.8 million, which could be a worrying factor, if continued over the long term. The depressed free cash flow was on account of 32%Y/Y increase in capex during the quarter.

On the whole the quarter was along the management’s strategy and in-line with analyst expectations. However the investors seemed to be worried about the weak future guidance and also departure of longtime CEO Lanham Napier, and the stock is trading 17% down as at the time of writing. However, it would be worth looking for entry points considering the 2014 prospects of higher margins and better revenue growth rates. Keep reading as we will keep you updated on any entry points for a long term investor which could arise in the RAX stock.

To see Rackspace’s latest stock price movement, click here (NYSE:RAX)

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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