Rackspace profits tumble 13 percent

Volatile currency markets in the fourth quarter helped drive profits down 13 percent for cloud storage service company Rackspace Hosting Inc., which has been battered by investors in recent months.

Rackspace’s earnings fell to $32.1 million, or 31 cents a share, for the three months ended Dec. 31 compared with $37 million, or 26 cents a share, during the same period last year, the company reported after U.S. stock markets closed Tuesday. Their per-share earnings are higher because the company bought back stock last year and had fewer shares outstanding at the end of 2015, according to company materials.

The San Antonio technology company, which provides cloud-based storage solutions to other businesses, generated $523 million in net revenue during the fourth quarter, up from $472.5 million, or 10.7 percent, in the fourth quarter of 2015.

The company earned $126.2 million for the year on $2 billion in net revenue, compared with $110.6 million in profits on $1.8 billion in revenue for 2014. Rackspace blamed the fourth-quarter drop in profits on volatile currencies in their markets overseas, which accounted for roughly 31 percent of their 2014 revenue, according to the most recent data available.

Although the fourth-quarter results beat analysts projections of 24 cents per share, it couldn’t stop the stock from sliding at least 4 percent lower in after-markets trading. The company warned investors that revenues will be softer than expected in the first quarter, between $517 million and $521 million, driving the already battered shares even lower.

Rackspace CEO and President Taylor Rhodes assured investors that the company’s customers were loyal and there was a strong and growing demand from companies that needed an outside service to manage their cloud storage.

“Our core product set has a stable customer base and generates consistent revenue growth, profit and cash flow,” he told analysts on a conference call after the company reported its results. “Our customers are loyal and sticky. Their spending with us recurs and grows and we expect that growth to continue.”

The company’s stock has plunged 64 percent over the last 12 months as it faces increasing competition from tech giants like Amazon, IBM, Microsoft and Google’s parent company Alphabet. Shares closed at $18.17 Tuesday, down more than 77 percent from an all-time high of $79.24 in January 2013.

The Street.com called Rackspace “The Worst Stock in the World” largely due to stiff competition from significantly larger rivals as well as a business model the online Wall Street publication said doesn’t give it a technical advantage over competitors.

“In our view this simply remains a ‘broken stock’ and as such will take multiple quarters of solid execution before most investors are willing to reevaluate,” Cowen and Co. analyst Colby Synesael wrote in a Feb. 3 research note to investors.