In its recent first quarter earnings report, website hosting and cloud computing company Rackspace Hosting, Inc. released a sales forecast that failed to reach analysts’ projections. According to Bloomberg, the company’s stock decreased in value 14 percent to $45.96 on May 12, leading to a $1 billion total loss for the company. So far this year, Rackspace’s stock has fallen 1.8 percent. The sales forecast for revenue in the second quarter of 2015 – which projected growth from 1.5 percent to 2.5 percent – fell short of estimates from market analysts.
This isn’t the first time Rackspace has taken a major hit to its stock in recent years. In February 2014, the San Antonio Business Journal reported that the company’s stock price took a 15 percent dive after the surprise announcement of the retirement of the CEO at the time, Lanham Napier. In response to the news, Greg Miller, an analyst with Canaccord Genuity, lowered his stock estimates from $42 per share to $39.
The current sales forecast hit the company hard. In order to reach even the bottom of the sales forecast, Rackspace’s sequential growth will have to increase 4 percent in the third and fourth quarters of 2015, according to Bloomberg Intelligence analyst Joshua Yatskowitz, which may only be possible through implementing larger deals more quickly.
What does this mean for the cloud services market?
Rackspace’s $1 billion stock hit will very likely be detrimental to the company, but the cloud managed services market will continue to strengthen. According to a recent report published by MarketsandMarkets, the cloud managed services market is expected to grow at a compound annual growth rate of 15.5 percent from 2015 to 2020, increasing from $52.23 billion to $118.43 billion. The growth will be spurred by increasing adoption of managed data center, mobility, security and network services.
“The cloud managed services market will continue to strengthen.”
In the future, enterprises looking to move workloads to a cloud computing facility and ensure security of their data may want to avoid companies like Rackspace and instead invest in more personal, steady cloud service providers. Rackspace will set its sights on offsetting the recent loss due to low growth projections. Since it is most likely going to focus on bigger deals for the foreseeable future, midsize organizations and small businesses may not be the company’s top priority moving forward.
Data centers and the cloud aren’t going anywhere – but it is important for companies to ensure service providers can accommodate their growing data computing needs with the right level of expertise and attention.