Open cloud company and OpenStack supporter
Rackspace saw its share price on the New York Stock Exchange fall 25% Thursday after an announcement that the company had not reached its projected first quarter earnings. Its stock was priced at $39.36 per share at the close of business, dropping around 12 points in after-hours trading.
Analysts believe the poor numbers are a result of severe competition in the cloud arena with some of the big players involved in cutthroat pricing. As recently as the beginning of April Google reduced prices for the on-demand virtual machines by 4%. A few hours later, Amazon Web Services (AWS) dropped prices for Windows virtual machines (VMs) on demand by 26%. Windows Azure has also been involved in what many see as a price war.
Rackspace itself suggested its reduced cloud pricing policy that went into effect in February was the key reason for reduced earnings. As a company, it does not have the capacity to compete with bigger players on pricing, and this suggests changes in direction for the company are on the horizon.
Despite the fall in share value, Rackspace has experienced growth in the period. Its OpenStack public cloud is growing, and revenue was up 20.2 per cent to $362 million. Analysts had though predicted a figure of $367 million. The company's net income grew 17.6 per cent during the period to $27 million.
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