Too Much Competition In The Cloud?

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(Photo Credit: TEDxSanAntonio)

Rackspace Hosting, Inc. (RAX), the open cloud company, will report its FQ2 '15 results after the market close today. Wall Street analysts are predicted the same EPS as last quarter, and Estimize are predicting a cent higher, at $.21. Wall Street is estimating the highest revenue results of $490.69M, the Estimize consensus is set at $484.32M, and guidance is at $449.93. Last quarter, revenue was $480.20M. Over the the past four quarters, the company's earnings have never missed the analysts' expectations and came either in-line or above the expectations.

Rackspace's cloud services host several Microsoft Corporation technologies including Microsoft Exchange, SharePoint, SQL Server, and Hyper-V workloads. In fact, the company has been partnering with Microsoft Corporation for 14 years. Rackspace's data center capacity is around 60 – 65%.

Rackspace's President and CEO, Taylor Rhodes, said that the company's execution tactics were fueling profitable growth that included growing the big enterprises number. The cloud company is operating in several regions and also has other production facilities to cater to its customers' needs. One enterprise gaining traction is Azure cloud, and recently Rackspace has extended its bond to support Azure cloud environments. Analysts also predict the company will expand to a hybrid cloud environment with a private and public cloud combination. Moreover, by extending the to third-party clouds, the company will be better placed to gain from the secular growth trend in the cloud market. Rackspace has the opportunity to make a distinctive name for itself due to its differentiated managed cloud offerings.

While it is true that the company has improved and grown, they are facing stiff competition from larger companies such as Google and Amazon. These two companies are taking a significant portion of revenue away from Rackspace. In addition, the Rackspace stock is not cheap, which is a further turnoff for many investors who do not see the risk worth the potential profit. 

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