Why Rackspace Stock Plunged Today

What happened

Shares of Rackspace Technology (NASDAQ:RXT) fell Friday morning after the company reported its fourth-quarter results Thursday. Investors appear disappointed with the company’s guidance for 2021. 

The tech stock was trading 12.1% lower as of 10:56 a.m. EST. 

So what 

Rackspace reported non-GAAP earnings per share (EPS) of $0.26, which beat analysts’ consensus EPS estimate of $0.23. Additionally, the company’s fourth-quarter sales of $716 million easily outpaced Wall Street’s estimate of $702 million.  

A red stock chart pointing down.

Image source: Getty Images.

“The fourth quarter capped off a fantastic year for Rackspace Technology,” CEO Kevin Jones said in a press release. “Our success in energizing sales bookings in 2020 continues to drive-double digit revenue growth. In addition we are seeing very strong earnings leverage as earnings growth outpaced revenue growth for both the fourth quarter and the full year.”  

But investors may have been disappointed by the company’s 2021 non-GAAP EPS guidance range of $0.95 to $1.05. While that would amount to 20% growth at the midpoint, the entire range was below the $1.09 to $1.14 range that analysts were predicting.  

Now what 

Rackspace’s management anticipates that its 2021 revenue will be $3 billion at the midpoint of the guidance range, up 11% from 2020. That outlook, coupled with the company’s forecast earnings growth, seems like it should have been enough to make investors optimistic about Rackspace’s upcoming year. But investors can be unpredictable. And even after Friday morning’s share price plunge, Rackspace is still up by 33.7% over the past 12 months.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.


View more information: https://www.fool.com/investing/2021/02/19/why-rackspace-stock-plunged-today/

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