Rackspace Reports Q2

Rackspace Hosting, which IPO’d in August, released its Q2 earnings today.  I guess when you are a new listing, they relax the SEC reporting requirements as you settle in, considering how Q3 will be over in just a few weeks.  The market was unimpressed by Rackspaces’s results just as it was unimpressed by its IPO, but I think they just don’t understand the business.

Rackspace provides managed hosting at all levels, with datacenters in the top markets.  Put bluntly, there aren’t many similar public companies, and the market is in such a bad mood that nobody is willing to try to figure them out.  Revenues were $131M, up over 9% from $120M in Q1.  Annualized, that is a 53% growth rate, inline with their 57% growth over Q2 2007.  There isn’t a public company that I follow that wouldn’t shave itself bald and swim in mellow yellow on a Japanese game show for growth like that.  Well, maybe Akamai has been close until lately.

EBITDA was also up at $33.8M, up from $31.8M in Q2 – with some extra costs keeping the growth rate to a mere 5.9% sequentially, and earnings per share dropped from $0.05 to $0.04.  I suppose that’s what is annoying the street, but the company is investing in its own growth – opening datacenters in London and Hong Kong.  Depreciation is up more than usual and utilization is down substantially, what this means is that the company built out a lot of space and bought a lot of servers that it will grow into.  It seems clear they *will* use that capacity and of course won’t incur those costs twice, it’s just a timing thing.

Now, I highly doubt Rackspace can continue to grow at over 50% for much longer, but their market continues to be red hot – recession or no recession – and it seems as if they should be able to keep it going for the near future.

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Categories: Datacenter