Shares tumble as Rackspace revises Q2 expectations

Rackspace shares fall by 13% on revised estimates for Q2

Rackspace’s shares took a nose-dive on Monday, after the hosting giant lowered its revenue expectations for the coming quarter.

The San Antonio-based company met expectations for the first quarter, reporting $480.2m; however, it said that it expected growth in the second quarter to slow.

“For the second quarter of 2015, Rackspace expects revenue to grow between 1.5 percent and 2.5 percent on a constant currency basis and adjusted EBITDA margins to be between 32 percent and 34 percent,” the company said.

That would put revenue somewhere between $487m and $492. The forecast is still up year-on-year, but Wall Street had anticipated revenue somewhere in the region of $502m. The revision sent Rackspace’s shares tumbling on Monday to $46.23, a 13% drop from the start of the day.

The hosting company’s shares were in the $36 range a year ago and it has successfully ridden the wave of interest in public cloud; however, Rackspace has not grown at the same pace as some of its competitors. This is primarily due to the fact that it sells managed hosting services, which is a slower growth market compared to the raw compute power that the likes of Amazon are selling.  

Monday’s announcement suggests that the steady growth seen over the past few quarters is beginning to taper off.

Read more on Channel Partner Programmes