Rackspace Hosting profit misses as costs weigh

Mon May 7, 2012 6:36pm EDT

(Reuters) - Rackspace Hosting Inc (RAX.N) reported a first-quarter profit that missed Wall Street expectations as the company spent more on its data centers and beefed up its workforce to cater to the growing demand for cloud computing.

Shares of the company, which has topped profit estimates for the last three quarters, fell 13 percent to $50.25 in extended trade.

Total costs and expenses in the quarter rose 28 percent to $264 million.

Hosting companies like Rackspace, which usually own or lease space on a server for use by their clients, have been spending heavily on data center infrastructure as they look to tap strong demand for web hosting from small and mid-sized businesses looking to save costs in a sluggish economy.

"We are increasing investments across the company to bolster our systems, products, and service capabilities," Chief Executive Lanham Napier said on a post-earnings call with analysts.

He also said the company made a big jump in hiring -- it added 275 employees in the first quarter, up from the 241 it hired in the previous quarter, and 230 a year ago.

Net income for the period ended March 31 rose to $23.2 million, or 17 cents per share, from $13.8 million, or 10 cents a share, a year earlier.

Analysts were expecting the company, which competes with Equinix (EQIX.O) and Internap Network Services Corp (INAP.O), to earn 18 cents per share, according to Thomson Reuters I/B/E/S.

Revenue rose 31 percent to $301 million, marginally topping estimates of $300.5 million.

The San Antonio, Texas-based company's shares, which have risen 34 percent since the beginning of this year, closed at $57.80 on Monday on the New York Stock Exchange.

(Reporting by Siddharth Cavale and Supantha Mukherjee in Bangalore; Editing by Don Sebastian, Saumyadeb Chakrabarty)