Rackspace Hosting Earnings Preview

Rackspace Hosting (NYSE: RAX) is expected to post its Q3 earnings at $0.16 per share on revenue of $387.47 million.

Rackspace appointed their first COO in September. Shares of the IT cloud computing company based in San Antonio has outperformed AT&T and the Dow Jones over the past months.

Rackspace currently has a market cap of close to $6 billion. Only eight out of 23 analysts on Bloomberg recommend to Buy shares with an average price target of $53.54.

Morgan Stanley analyst Simon Flannery has a positive outlook on Rackspace's 3Q13 earnings. Flannery commented that the company's goals have included its transition to OpenStack-powered public cloud and reinvesting in the business. The analyst noted that revenue and margins may have slowed in the near-term due to Rackspace's focus on the long-term.

Flannery wrote, "We believe RAX is well positioned as a pure play on managed hosting / cloud computing within the SMB market, with the potential to take further share among Enterprise customers. A scalable model, product innovations and continued secular demand for IT outsourcing should support growth. However, competitive headwinds may become stronger as incumbent tech companies and new entrants both try to gain market share in the secularly attractive cloud business."

Oppenheimer analyst Timothy Horan upgraded Rackspace from Market Perform to Outperform with a $62 PT in October. Horan noted the increased momentum from cloud computing in the past five years and the recent "lull" in activity this year.

The analyst added, "We believe this pause is the industry migrating through the "cloud chasm" as providers seek to transition from early adopters to pragmatist/conservative customers (70% of market). Importantly, these two customer bases are very different. We believe this transition will unfold over the next several years but will reaccelerate growth for cloud companies in our sector."

Canaccord analyst Greg Miller maintained his wary view on the cloud computing company. Miller commented on Microsoft's announcement that they will cut Windows Azure cloud service prices for customers and the continued competition in the cloud computing market. Canaccord added that the continued decrease in price will complicate Rackspace's traction with OpenStack and revenue growth.

Miller reported, "We believe the latest round of price cut of cloud services at Microsoft is likely targeted more toward industry leader Amazon AWS services than Rackspace, as AWS continues to dominate the cloud computing market. However, lower prices at competing cloud ecosystems (AWS, Azure) and incremental competition will likely make it increasingly challenging for Rackspace to further expand customer base for Openstack, as bullish investors appear to be hopeful for."