Rackspace Share Price Down 25% As Cloud Price Wars Take Their Toll

Posted: May 10, 2013 in Enterprise, GT
Tags: ,

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Rackspace will open trading this morning on the New
York Stock Exchange with a share price that dropped
nearly 25% on Thursday. The stock fell after the
company missed its earnings, raising concerns the
cloud price wars with giants like Amazon Web
Services are taking its toll. The stock dropped about 12 points, ending trading at
$39.36 per share. That puts the share price near its
52-week low of $38.30 per share. On Wednesday, Rackspace reported 19 cents
earnings per share (EPS). Analysts had expected
Rackspace to report 20 cents EPS. The company
had revenues of $362 million for the quarter,
compared to $367 million that analysts had expected. Rackspace executives cited its across the board drop
in cloud pricing that it put into effect in February for
the missed earnings. At the time, Rackspace
provided a detailed picture of the price decrease,
going into detail about its justification for the price
drop. But it was not enough for Rackspace to make a
difference in a market that has seen successive price
drops by AWS, Windows Azure. Additionally its
OpenStack public cloud is growing but not enough to
make a difference in the earnings. Rackspace cannot compete on price with AWS. The
company does not have the scale to absorb the drop
in revenues. More so, it’s evident that Rackspace
needs a different way to get ahead. I am hearing
experts say that should be a big data play of some
sort that can leverage its distributed infrastructure.

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