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Rackspace Plunges on Earnings Miss

NEW YORK (TheStreet) -- Rackspace Hosting (RAX - Get Report) shares were surrendering 7.17% to $45.43 in after-hours trading after the cloud computing company's slide in third-quarter earnings overshadowed better than expected revenue.

The company reported net income of $16 million, declining 40% from the same time last year. The downbeat results were driven by a 24% jump in costs and expenses as the company invested in hardware, in a bid to take market share from giants such as Amazon (AMZN).

Earnings per share came in at 11 cents, down from 19 cents a share from the prior quarter and missing the Wall Street consensus estimate of 16 cents a share, according to a survey of analysts by Thomson Reuters.

Still, the company managed to post a 16% rise in revenues to $389 million on a 14.5% rise in server deployment, exceeding the average analyst estimate of $387.52 million.

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"Our customers have been telling us that they want larger and larger applications to run in the cloud and so we're going to accommodate this," Mark Interrante, Rackspace's product vice president told TheStreet. "We've gone to much larger RAM storage sizes. So now we support over 120 gigabytes, and that's four times larger than what we offer currently."

Rackspace has begun unrolling its new "Performance Cloud Servers," which the company says deliver disk speeds 132 times more powerful than its existing servers for as little as two-thirds of the price of comparatively sized cloud servers from competitors, and should pave the way for a powerful hosting platform.

"One of the things that Rackspace has been very committed to is insuring that the cloud will evolve based on open technology, so we don't repeat the sins of the past where only proprietary vendors are building out technologies in new era," said chief marketing officer Rick Jackson during an interview with TheStreet.

--Written by Andrea Tse in New York

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