Rackspace raises buyback to up to $1 billion, shares jump

By Kshitiz Goliya and Arathy S Nair

(Reuters) - Web hosting company Rackspace Hosting Inc reported an 11 percent rise in quarterly revenue and raised its share buyback program to up to $1 billion, sending its shares up 5.2 percent in extended trading on Monday.

The company said the buyback is in addition to the $200 million it had already bought back. The company announced a $500 million buyback program in November.

Results for the quarter and the outlook "will be a footnote as the company announced a billion dollar incremental buyback and that will trump all other news items of the day, whether it should or not," Needham & Company analyst Richard Kugele said.

The company is facing price competition from Amazon.com, Google Inc and Microsoft Corp for cloud services that include online storage, processing power and database services.

"While our overall sales momentum did pick up in the latter part of Q2, our public cloud growth remained slow throughout the quarter," Chief Executive Taylor Rhodes said.

Public cloud refers to shared physical hardware offered by Rackspace to a number of users.

"I don't think there is a broader problem with public cloud," Kugele said, adding that the problem seemed specific to the company.

Revenue from Amazon's cloud operations - Amazon Web Services (AWS) - nearly doubled in the second quarter, indicating that the business was poised to drive sustainable earnings for the online retailer, according to analysts.

Rackspace, which leases online storage space to companies and provides its clients management and support services, also said it expects third-quarter revenue to rise 2 percent to 3.5 percent on a constant currency basis.

Net income rose to $29.2 million, or 20 cents per share, in the second quarter ended June 30, from $22.5 million, or 16 cents per share, a year earlier.

Revenue rose 10.9 percent to $489.4 million.

Analysts on average had expected a profit of 20 cents per share on revenue of $490.5 million, according to Thomson Reuters I/B/E/s.

Up to Monday's close, stock had fallen 32.2 percent this year.

(Reporting by Kshitiz Goliya in Bengaluru; Editing by Don Sebastian)