Why Rackspace Hosting Shares Tanked

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Rackspace Hosting (NYS: RAX) have tanked today by as much as 14% after the company reported earnings that missed analyst expectations.

So what: Revenue rose 31% to $301 million, with earnings per share of $23.2 million, or $0.17 per share. That bottom-line figure was a mere penny shy of what the Street was looking for. Investors may also be concerned that Rackspace's revenue growth may be decelerating amid increasing competition.

Now what: Amazon.com (NAS: AMZN) recently noted that it has lowered prices in its competing Amazon Web Services division 19 times over the past five years, which is a threat to Rackspace's top line. A handful of Street analysts are calling the plunge a buying opportunity, saying that growth is still strong and that Rackspace is poised to become the "dominant services company for cloud computing." There's also mention that the company could be viewed as a potential takeover target.

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At the time thisarticle was published Fool contributor Evan Niu owns shares of Amazon.com, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Amazon.com. Motley Fool newsletter services have recommended buying shares of Rackspace Hosting and Amazon.com. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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