Rackspace Hosting Shares Up 4% As Q3 Results Top Estimates

(RTTNews) - Shares of Rackspace Hosting, Inc (RAX) rose nearly four percent in extended trading on Monday after the cloud computing services provider reported results for the third quarter that topped analysts' expectations.

The company reported a profit for the quarter that surged 59 percent from last year, reflecting improved margins and double-digit revenue growth. The company also provided revenue guidance for the fourth quarter, just below Street view.

Further, the company's board of directors authorized a repurchase of up to $500 million of the company's stock over the next two years. The company plans to execute a $200 million accelerated share repurchase as its first initiative under the program.

Rackspace said it plans to fund the share repurchases through a combination of its available cash balance and existing line of credit. The remaining $300 million will be available for purchases in future periods.

"We are pleased with our operating performance this quarter and encouraged by the momentum we are seeing in the business," President and CEO Taylor Rhodes said in a statement.

The San Antonio, Texas-based company reported net income of $25.74 million or $0.18 per share for the third quarter, up from $16.31 million or $0.11 per share in the prior-year quarter.

On average, 20 analysts polled by Thomson Reuters expected the company to report earnings of $0.16 per share for the quarter. Analysts' estimates typically exclude special items.

Net revenue for the quarter increased 18.3 percent to $459.78 million from $388.64 million in the same quarter last year, and topped nineteen Wall Street analysts' consensus estimate of $458.36 million by a whisker.

Net revenue from dedicated cloud grew to $320 million from $280 million, and public cloud net revenue increased to $140 million from $108 million in the year-ago quarter. Net revenue improved 16.1 percent on a constant currency basis.

Total server count at the end of the quarter stood at 110,453, up from 101,967 servers at the end of the year-ago quarter, and average monthly revenue per server grew to $1,405 from last year's $1,290.

Operating margin for the quarter expanded 170 basis points to 8.8 percent from last year's 7.1 percent.

Looking ahead to the fourth quarter, the company expects total net revenue to range between $469 million and $476 million. Street is currently looking for full-year 2014 revenues of $476.51 million.

"We are poised to capitalize on the massive opportunity ahead in the managed cloud market, where we see increasing demand for our managed services and expertise. And while we made strong progress this year, we're determined to continually improve our execution and seize our future," Rhodes added.

RAX closed Monday's regular trading session at $37.32, down $0.11 or 0.29% on a volume of 2.84 million shares. However, the stock gained $1.41 or 3.78% in after-hours trading.