Rackspace Plunges: What Wall Street's Thinking

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Updated from 12:31 p.m. to include thoughts from FBN analyst.

NEW YORK ( TheStreet) -- Rackspace shares plunged in early Tuesday trading, falling 18.1% to $33.03 after the cloud computing company posted exceptionally weak fourth-quarter results and announced the departure of CEO Lanham Napier.

For the fourth quarter , San Antonio-based Rackspace earned 14 cents a share on $408 million in revenue, up 16% year over year. Analysts surveyed by Thomson Reuters were looking for 14 cents a share on sales of $404 million.

For the quarter, Rackspace's total server count increased to 103,886, up 2% sequentially.

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Despite the in-line report, Rackspace announced that CEO and board member Napier had retired, as he looks to move into other investment opportunities. Co-founder and executive chairman Graham Weston will become CEO.

"My decision to step down as CEO was a difficult one, but it's the right choice for me and for the company. With the board and management team aligned around our 2014 strategy and financial plan, I believe now is a natural transition point to select a new leader for the next exciting phase of Rackspace's growth," said Napier in a statement.

Weston noted Rackspace would start to focus on the hybrid cloud, as the company attempts to differentiate itself from its competitors, including Amazon , Google , Microsoft and others, as the environment becomes more competitive on pricing. "In 2014, we will take the next step to carve out our differentiated position and help the next adoption wave of customers reach a hybrid cloud world. We will continue to invest in our portfolio of services and reinforce our differentiation in the market. We will win as we always have one delighted customer at a time," Weston said in a statement.

Despite the better-than-expected revenue, most analysts on Wall Street were lowering their price targets, citing the uncertainty around the CEO leaving and the competitive environment. Here's what a few of them had to say:

Jefferies analyst Mike McCormack (Hold, $35 PT)

"RAX delivered better than expected headline results, benefiting from FX tailwinds. With guidance largely in-line with expectations, and implying limited growth acceleration, the quarter failed to deliver a turn-around that bulls have been waiting for. Given the uncertainty of the growth profile, we maintain our Hold rating, but lower our year-end 2014 price target to $35."

UBS analyst Steven Milunovich (Neutral, $38 PT)

"Rackspace's strategy is to sell to 'pragmatic' customers that value Fanatical Support and are attracted to Open Stack for hybrid cloud. Management argues that early public cloud users are more do-it-yourselfers but that the next wave will be mainstream companies that will want Rackspace's higher level of service. This is the critical issue- will RAX be able to differentiate even against the likes of IBM and VMware in hybrid cloud or will CIOs be attracted by lower prices than RAX is willing to offer?"