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Coverage Initiation: Rackspace Hosting
Rackspace Hosting (RAX) recently made its debut in The Value Line Investment Survey. The San Antonio-based corporation offers hosting and cloud computing capabilities to small, medium, and large businesses worldwide.
The company was founded in 1998 and was incorporated on March 7, 2000. Its initial public offering was held on August 7, 2008. At that time, 15 million shares were sold to the public at an average price of $12.50 a share. Rackspace’s operations and market reach have expanded rapidly since that time, and it is now one of the leading providers of cloud computing services in the world. It has operations in the United States, Great Britain, the Netherlands, and China, and the company’s offerings are sold to businesses in 120 countries. In 2010, Rackspace served approximately 130,000 business customers, managed 66,000 servers and more than 2.1 million email accounts.
Cloud computing allows businesses to deliver applications, store data, and do computations, among other services, via the infrastructure of an external provider (i.e., a network of computers, instead of using internal resources). Typically, companies not only have to purchase computers for their employees, but also individual software, software licenses, and servers in order to handle the networking aspect of connecting the individual computers. When applications and content are in a cloud, employees can access them through the Internet and, therefore, do not need software installed on their computers. Thus, utilizing cloud computing can often reduce operating and information technology spending for companies of all sizes.
Rackspace is one of the market leaders in the cloud computing space, but it is worth mentioning that this industry is fiercely competitive, with a number of companies offering similar products and services. Amazon.com (AMZN), Google (GOOG), and salesforce.com (CRM) are some of the other major players, while International Business Machines (IBM – Free IBM Stock Report), Apple (AAPL), and some other technology behemoths have or will likely soon throw their hats into the cloud computing ring. Thus, it is vital that Rackspace continue to aggressively fuel research and development endeavors in order to improve existing products, as well as introduce new offerings over the long term. In addition, Rackspace, as well as some of the other relatively small cloud computing companies, may become acquisition targets down the road. In many cases, the larger technology companies prefer purchasing businesses with existing offerings, rather than investing in internal product development, assuming proper financing can be obtained.
Looking ahead, although the industry is crowded and competitive, Rackspace’s near- and long-term prospects appear solid. Typically, adopting cloud computing can reduce a business’ operating and IT expenses. Thus, the demand for such services should remain strong over the foreseeable future. In all, we recommend that investors looking to bolster their technology holdings give Rackspace Hosting a glance.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.