Why Rackspace Hosting, Inc. Jumped on Tuesday

By Anders BylundFool.com

Source: Rackspace.

What: Shares of Rackspace Hosting rose as much as 17% on Tuesday morning. The provider of cloud computing and hosted server solutions reported strong third-quarter results Monday night.

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So what: In the third quarter, Rackspace's sales grew 10.7% year over year to $509 million. Adjusted EBITDA profits increased by 12%, landing at $177 million. GAAP earnings stopped at $0.26 per diluted share, a 44% increase over the year-ago period.

The company beat the high end of its own EBITDA margin and revenue guidance ranges.

Now what: Rackspace is carving out a niche in the evolving cloud computing world, where the company provides high-quality support and management services for cloud platforms sold by other companies.

"We're excited about the new products and partnerships that we've launched in recent months, with Amazon Web Services, Intel and Microsoft," said Rackspace CEO Taylor Rhodes in a press statement. "These initiatives will make us more competitive and will drive our growth for the future."

The company has been selling support packages for the Microsoft Azure platform since July, adding Amazon.com Web Services in early October. So these are new products in Rackspace's portfolio, and it's unclear exactly how large their potential revenue streams and final profit margins might be, but you have to start somewhere. Providing Rackspace's vaunted "fanatical support" for the two leading services in this space makes a lot of sense.

Tuesday's surge notwithstanding, Rackspace investors are still staring down a difficult year here. Share prices may have bounced back recently, rising more than 30% from 52-week lows in early October, but still trade down 32% year to date and 44% below 52-week highs.

The article Why Rackspace Hosting, Inc. Jumped on Tuesday originally appeared on Fool.com.

Anders Bylund owns shares of INTC and RAX. Anders Bylund has the following options: short January 2016 $320 puts on AMZN and long January 2016 $320 calls on AMZN. The Motley Fool owns shares of and recommends AMZN. The Motley Fool owns shares of MSFT. The Motley Fool recommends INTC and RAX. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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