Cloud Hosting Company Rackspace Hosting profit misses – 05/08/2012

Rackspace Hosting Inc <RAX.N> reported a first-quarter profit that missed Wall Street expectations as the company spent more on its data centers and beefed up its workforce to cater to the growing demand for cloud computing.

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Shares of the company, which has topped profit estimates for the last three quarters, fell 13 percent to $50.25 in extended trade.

Total costs and expenses in the quarter rose 28 percent to $264 million.

Cloud Hosting companies like Rackspace, which usually own or lease space on a server for use by their clients, have been spending heavily on data center infrastructure as they look to tap strong demand for web hosting from small and mid-sized businesses looking to save costs in a sluggish economy.

“We are increasing investments across the company to bolster our systems, products, and service capabilities,” Chief Executive Lanham Napier said on a post-earnings call with analysts.

He also said the company made a big jump in hiring — it added 275 employees in the first quarter, up from the 241 it hired in the previous quarter, and 230 a year ago.

Net income for the period ended March 31 rose to $23.2 million, or 17 cents per share, from $13.8 million, or 10 cents a share, a year earlier.

Analysts were expecting the company, which competes with Equinix <EQIX.O> and Internap Network Services Corp <INAP.O>, to earn 18 cents per share, according to Thomson Reuters I/B/E/S.

Revenue rose 31 percent to $301 million, marginally topping estimates of $300.5 million.