Soaring migration to the cloud drives Rackspace growth

Web hosting company Rackspace Hosting Inc (RAX.N) reported double digit third-quarter revenue growth for the fifth consecutive time as enterprise customers boosted demand for its cheaper cloud services in an uncertain global economy…

"(Rackspace) appears to be uniquely positioned to benefit from the secular shift toward cloud computing … and continues to fire on all cylinders," Mizuho Securities USA analyst Michael Nelson said, saying this has offset any negative impact the economy could have had on sales.

Looking for cheaper alternatives to run their businesses, many small- and medium-sized firms are migrating to hosting their applications on the cloud. These applications run on servers and hardware provided by companies like Rackspace, instead of on in-house resources.

"For 2012, I still think revenue growth is going to in the high 20 percent range even with macro headwinds, but on a normalized basis I think it is shooting for 30-35 percent growth," analyst Jonathan Schildkraut with Evercore Partners said.

The company, which competes with Equinix (EQIX.O) and Internap Network Services Corp (INAP.O), has said growth this year would exceed the 24 percent it achieved in 2010.

Revenue for the July-September period rose 32.5 percent to $265 million, compared with average analysts’ expectations of $261.6 million, according to Thomson Reuters I/B/E/S.

Net income was $19.9 million, or 14 cents a share, compared with $11.8 million, or 9 cents a share, a year ago.

Total server count rose 6 percent to 78,717 servers and total customers rose 6 percent sequentially.

The San Antonio, Texas-based company’s shares, which have risen 33 percent year-to-date, were up 3 percent at $42.94 after the bell. They closed at $41.75 on Monday on the New York Stock Exchange.