What Ails The Rackspace Stock?

What Ails The Rackspace Stock?

What Ails The Rackspace Stock?

Rackspace US, Inc. (NYSE: RAX), a IT hosting company based in San Antonio, Texas, has long been a darling of the cloud computing industry. Established in 1998 and gone public in 2008, Rackspace is one of the early success stories of the cloud computing revolution. However, its recent stock performance, in spite of revenue increases, has given investors cause for worry.

Here’s an analysis of the situation.

The following table from stock analysis website The Street brings into focus the relative non-performance of Rackspace in stock ROI as compared to other parameters. Like many tech companies, Rackspace does not pay dividends and hence, its low score on that factor is not of importance. Even Google and Microsoft would score poorly on that measure.

 

 Source: The Street (http://www.thestreet.com/r/ratings/reports/detail/RAX.html)

The Rackspace stock has lost 25% of its value in the last two months. While this may offer a great buying opportunity, as indeed many financial advisors believe, a comparison with peer Red Hat does raise some interesting issues. For one, on comparable revenues, Red Hat delivered 50% more profits than Rackspace. The inevitable question on Rackspace’s low operating margins follows.

Secondly, even with the price decline, Rackspace still trades at a considerable premium in terms of price-to-earnings ratio as compared to its peer group. This brings to mind the question whether the price correction was actually justified.

Source: The Street (http://www.thestreet.com/r/ratings/reports/peergroup/RAX.html)

There’s another cause for concern as pointed out by financial analyst Will Ashworth. He says that Rackspace is heavily depending on OpenStack – the open-source cloud computing project launched by Rackspace and NASA – to drive future growth (See: Archives: Open Stack). However, too many companies may be involved in OpenStack’s development, leading to the proverbial “too many cooks spoil the broth syndrome”. On the other hand, competing cloud computing platform Eucalyptus is already up and running. With the important first-mover advantage, Eucalyptus may very well steal a march on OpenStack.

In conclusion, while Rackspace still seems to be a good bet (it’s still “racking” up impressive revenue growth numbers), its management has its work cut out to ensure its top rating in the cloud computing stakes.

By Sourya Biswas

sourya

Sourya Biswas is a former risk analyst who has worked with several financial organizations of international repute, besides being a freelance journalist with several articles published online. After 6 years of work, he has decided to pursue further studies at the University of Notre Dame, where he has completed his MBA. He holds a Bachelors in Engineering from the Indian Institute of Information Technology. He is also a member of high-IQ organizations Mensa and Triple Nine Society and has been a prolific writer to CloudTweaks over the years... http://www.cloudtweaks.com/author/sourya/
FacebookTwitterLinkedInGoogle+Share

4 Responses to What Ails The Rackspace Stock?

  1. I was a Rackspace customer for 6 years, paying 3200.00 per month for 3 dedicated servers. I finally came to my senses and switched to 8×8 by for almost half the price and my service is GREAT. I will I did it sooner! Down with rackspace price gouging!

Join Our Newsletter

Receive updates each week on news, tips, events, comics and much more...

Advertising Programs

Click To Find Out!

Sponsored Posts

Sponsored Posts

CloudTweaks has enjoyed a great relationship with many businesses, influencers and readers over the years, and it is one that we are interested in continuing. When we meet up with prospective clients, our intent is to establish a more solid relationship in which our clients invest in a campaign that consists of a number of

Popular

Top Viral Impact

Cloud Computing Offers Key Benefits For Small, Medium Businesses

Cloud Computing Offers Key Benefits For Small, Medium Businesses

A growing number of small and medium businesses in the United States rely on as a means of deploying mission-critical software products. Prior to the advent of cloud-based products — software solutions delivered over the Internet – companies were often forced to invest in servers and other products to run software and store data. The

Cloud Infographic: The Education Of Tomorrow

Cloud Infographic: The Education Of Tomorrow

Cloud Infographic: The Education Of Tomorrow  Online Education is a very exciting topic for many as it opens up many new doors and opportunities. We’ve touched on areas such as Massive Open Online Sources (MOOC) which provides tremendous levels of cloud based interconnectivity. We’ve taken a look into higher education,  the increased demand for online courses as well as

Cloud Infographic – Big Data Survey: What Are The Trends?

Cloud Infographic – Big Data Survey: What Are The Trends?

Jaspersoft Big Data Survey Shows Rise in Commitment to Projects and Decline in Confusion Nearly 1,600 Jaspersoft Community Members Participate in Second Jaspersoft Big Data Survey San Francisco, February 4, 2014 – Jaspersoft, the Intelligence Inside applications and business processes, today shared results from its Big Data Survey. Nearly 1,600 Jaspersoft community members responded to

Can I Contribute To CloudTweaks?

Yes, much of our focus in 2015 will be on working with other influencers in a collaborative manner. If you're a technology influencer looking to collaborate long term with CloudTweaks – a globally recognized leader in cloud computing information – drop us an email with “tech influencer” in the subject line.

Please review the guidelines before applying.

Whitepapers

Top Research Assets

HP OpenStack® Technology Breaking the Enterprise Barrier

HP OpenStack® Technology Breaking the Enterprise Barrier

Explore how cloud computing is a solution to the problems facing data centers today and highlights the cutting-edge technology (including OpenStack cloud computing) that HP is bringing to the current stage. If you are a CTO, data center administrator, systems architect, or an IT professional looking for an enterprise-grade, hybrid delivery cloud computing solution that’s open,

Public Cloud Flexibility, Private Cloud Security

Public Cloud Flexibility, Private Cloud Security

Public Cloud Flexibility, Private Cloud Security Cloud applications are a priority for every business – the technology is flexible, easy-to-use, and offers compelling economic benefits to the enterprise. The challenge is that cloud applications increase the potential for corporate data to leak, raising compliance and security concerns for IT. A primary security concern facing organizations moving