Rackspace Not on 'Cloud 9' Anymore

NEW YORK (TheStreet) -- Rackspace (RAX) had everything going for it until the middle of February, when it reported fourth-quarter earnings. Since then, it's been all downhill.

The San Antonio, Texas-based company reported a 25% rise in revenue to $352.9 million, but analysts were looking for $355.4 million in sales for the quarter. Companies that trade at high earnings multiples, such as Rackspace, are not afforded the slightest blips in numbers. Wall Street then punished shares following the release, sending the stock down 20% the day after the earnings report. Shares have continued to trend lower since then, and are down 29.6% for the year.

If that wasn't enough, Rackspace has been in a price competition with competitors such as Google (GOOG) and Amazon (AMZN), which both offer similar services.

On Feb. 22, Rackspace said it would cut prices for cloud bandwidth and content delivery network (CDN) by 33%, responding to increasingly price-sensitive customers.

Rackspace also said it will be implementing tiered pricing for its open cloud product portfolio, starting with Cloud Files, its object storage service. These pricing changes will take place over the next several weeks, starting Feb. 22. The price will change from 18 cents to 12 cents per GB.

An earnings miss, and a subsequent price cut are not what momentum investors want to hear. Rackspace has gone from having its head, and stock in the "clouds," to being just another company in a commodity business.

--Written by Chris Ciaccia in New York

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