Rackspace Share Price Down 25% As Cloud Price Wars Take Their Toll

Rackspace will open trading this morning on the New York Stock Exchange with a share price that dropped nearly 25% on Thursday. The stock fell after the company missed its earnings, raising concerns the cloud price wars with giants like Amazon Web Services are taking its toll.

The stock dropped about 12 points, ending trading at $39.36 per share. That puts the share price near its 52-week low of $38.30 per share.

On Wednesday, Rackspace reported 19 cents earnings per share (EPS). Analysts had expected Rackspace to report 20 cents EPS. The company had revenues of $362 million for the quarter, compared to $367 million that analysts had expected.

Rackspace executives cited its across the board drop in cloud pricing that it put into effect in February for the missed earnings. At the time, Rackspace provided a detailed picture of the price decrease, going into detail about its justification for the price drop.

But it was not enough for Rackspace to make a difference in a market that has seen successive price drops by AWS, Windows Azure. Additionally  its OpenStack public cloud is growing but not enough to make a difference in the earnings.

Rackspace cannot compete on price with AWS. The company does not have the scale to absorb the drop in revenues. More so, it’s evident that Rackspace needs a different way to get ahead. I am hearing experts say that should be a big data play of some sort that can leverage its distributed infrastructure.