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Growth comes with costs for cloud-support flinger Rackspace

Sticky and loyal OpenStackers: Firm reveals AWS, Azure hopes

Rackspace saw growth across most lines during its fourth quarter and year – alas, that also included costs, it has said.

Management also warned Rackspace watchers over an impending re-organisation in sales that would allow disrupt its current, first-quarter sales.

Worrying, too, is a slow-down in Rackspace’s native OpenStack public cloud business as the masses flock to Amazon’s AWS and Microsoft’s Azure.

Bitter-sweet irony, then, that the quarterly and – particularly - those annual results covered the year when Rackspace announced it would be providing "fanatical" customer support for those Amazon and Microsoft clouds.

Rackspace Tuesday reported a 13.2 per cent drop in net income for the three months to December 31 to $32.1m on a 10.6 per cent increase in net revenue to $522.8m.

Earnings per diluted share also fell, 7.6 per cent to $0.24.

As revenue grew, so did Rackspace’s costs – an almost like-for-like 9.1 per cent to $461.3m.

Rackspace made $126.2m for the year, growing 14.1 per cent, on an 11.5 per cent increase in revenue to $2bn. Diluted earnings per share was up 16.8 per cent to $0.90.

And, yup, costs were also on the up: 10 per cent for the 12 months to $1.7bn.

Cost of revenue, sales and marketing and general and administrative were among the biggest outgoings that all saw increases.

Talking of what’s coming revealed trouble at hand. Rackspace predicted a virtually flat first quarter – between $517m and $521m – with annual revenue expected between $2.08bn and $2.16bn. The Wall St consensus was for $530.7m and $2.21bn respectively.

The company in January named its president of global sales and marketing as Alex Pinchev – the one-time head of Red Hat global sales services and field marketing until 2012. Of late, Pinchev's cruised the strategic advisor, board member and angel investor scene.

Company chief executive Taylor Rhodes said Tuesday he’d pitched the company’s first-quarter low to accommodate changes Pinchev will make to sales and marketing.

“We expect a little gap here as Alex gets the engine revving,” he said.

The other unknown is the impact that AWS and Azure business will have, both eroding the OpenStack customer base and the revenue from the new business.

He claimed 100 customers for its fanatical AWS support since launch in October 2015 with the Microsoft cloud support – from July - “off to a good start.”

He insisted the existing, first-generation OpenStack business are both “sticky and loyal.”

However: “More and more incremental or new workloads are heading to AWS and Azure,” Taylor said. “Winning those new workloads used to be a key part of our growth driver, and without them we expect our OpenStack public cloud growth to slow in 2016, and that's a factor baked into the guidance as well.” ®

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