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Rackspace Hosting Down to 52-Week Low on Dismal Trends

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Shares of Rackspace Hosting, Inc.RAX plunged to a new 52-week low of $25.06 on Sep 29. This cloud computing company eventually closed at $25.19, representing a year-to-date decline of 46.2%. Average volume of shares traded over the last three months was more than 2,318k.

Why the Plunge?

Rackspace's recent share price drop can be attributed to its not-so-encouraging second-quarter 2015 results. While the top line missed the Zacks Consensus Estimate, the bottom line managed to match the same. The company's share price plummeted nearly 21% following its second quarter results.

The company also provided tepid revenue outlook for the forthcoming quarter and the full year. For the third quarter of 2015, Rackspace expects revenues to be approximately $503 million at its mid-point. The Zacks Consensus Estimate is pegged at $504 million.

Rackspace also lowered its revenue guidance for full year 2015. The company now expects revenues to grow in the range of 12% to 14% on a constant currency basis, down from the previously guided range of 14% to 18%.

Additionally, estimate revisions have not been favorable. Over the past 60 days, the company witnessed negative estimate revisions for both the current quarter and fiscal 2015. The Zacks Consensus Estimate consequently moved down 4.5% to 21 cents and 5.7% to 83 cents for the current quarter and fiscal 2015, respectively.

It is worth noting that off late organizations have become increasingly vulnerable to cyberattacks, the most noticeable being distributed denial of service (DDoS) attacks. DDoS is the most common form of cyberattack that uses a large number of computers to bring down the targeted network by choking it with too much traffic. As instances of DDoS attacks continue to rise, Rackspace being a cloud computing company is quite prone to these attacks. This is limiting the company's growth prospects, going forward.

Furthermore, competition in the Infrastructure-as-a-Service (IaaS) market is intense, particularly with players like Amazon AMZN and behemoths like Microsoft MSFT that are willing to price aggressively. This could remain a headwind for this Zacks Rank #3 (Hold) company.

Stock to Consider

A better-ranked stock in the same space is NetApp, Inc. NTAP , sporting a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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