Web hosting company Rackspace forecasts revenue below Street

Reuters News
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Posted: May 11, 2015 6:33 PM

By Anya George Tharakan and Subrat Patnaik

(Reuters) - Rackspace Hosting Inc <RAX.N>, a web hosting company, forecast revenue for the current quarter below market estimates and said a strong dollar hurt its revenue growth in the first quarter.

Shares of the company, which faces tough competition from Amazon.com Inc <AMZN.O>, Google Inc <GOOGL.O> and Microsoft Corp <MSFT.O> were down 13 percent in extended trading on Monday.

Revenue from a contract with a "large" financial services company will be realized only in the third quarter, hurting revenue growth in the second quarter, Rackspace Chief Executive Taylor Rhodes said in a post-earnings call.

Rackspace Hosting will also take a one-time charge in the quarter as a customer moved some of its "production elements" away from a Rackspace data center in the United Kingdom.

The company said it expects revenue to grow between 1.5 percent and 2.5 percent in the current quarter on a constant currency basis from first quarter. That would translate to revenue of $487.4 million-$492.2 million.

Analysts on average were expecting revenue of $502.1 million, according to Thomson Reuters I/B/E/S.

Rackspace leases online storage space to companies and provides its clients management and support services for their cloud-based operations. It gets about a third of its revenue from outside the United States.

The company said foreign currency exchange rates hurt its revenue growth. Revenue increased 14.1 percent to $480.2 million in the first quarter ended March 31. On a constant currency basis, revenue grew 16.6 percent.

Analysts had expected revenue of $481.6 million.

The dollar has risen about 23 percent against a basket of major currencies <.DXY> in the past year.

Net income rose to $28.4 million, or 20 cents per share, from $25.4 million, or 18 cents per share, a year earlier.

Analysts expected a profit of 20 cents per share.

Rackspace shares closed at $53.13 on the New York Stock Exchange on Monday. They have risen 89 percent in the past 12 months.

(Editing by Joyjeet Das)