Why Rackspace Shares Got Crushed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Web-hosting company Rackspace Hosting plunged 18% today after its quarterly results disappointed Wall Street.

So what: Rackspace's fourth-quarter profit managed to meet estimates, but a small miss on the top line -- revenue of $353 million versus the consensus of $355.4 million -- reinforces serious concerns over slowing demand. Management blamed the slowdown on its transition to the next-generation cloud, but given that it is the fifth straight quarter in which growth has slowed, investors just aren't buying it.


Now what: For 2013, management expects to spend between $375 million and $445 million in total capital expenditures. "We have ambitious plans; plans that involve making significant investments in new product and service development, fanatical support capability, branding, OpenStack community support and geographic expansion," said CEO A. Lanham Napier in a conference call. "[I]n the cloud era, we're taking a more proactive role in the development and technologies that we manage for our customers." With the stock now off about 25% from its 52-week high, betting on that bullishness might not be a bad idea.

Interested in more info on Rackspace? Add it to your watchlist.

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The article Why Rackspace Shares Got Crushed originally appeared on Fool.com.

Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends Rackspace Hosting. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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