2015 Advertising Opportunities - Find Out More!

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/

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!

Comics

At CloudTweaks, we're plugged into the cloud, the internet of things and all that the web has to offer. From wearable technology, to mobile computing, cloud computing and big data, CloudTweaks is your source for updates and news on the most innovative technology.

Popular

Top Viral Impact

The Education Revolution: Cloud In The Classroom

The Education Revolution: Cloud In The Classroom

The Education Revolution: Cloud In The Classroom With the back-to-school season now upon us, parents, students and teachers everywhere are once again struggling with the perpetual challenge of making kids job-ready in a high-speed and fast-changing environment. There is little doubt in anyone’s mind that information technology plays a central role in all areas of life…

The Industries That The Cloud Will Change The Most

The Industries That The Cloud Will Change The Most

The Industries That The Cloud Will Change The Most Cloud computing is rapidly revolutionizing the way we do business. Instead of being a blurry buzzword, it has become a facet of everyday life. Most people may not quite understand how the cloud works, but electricity is quite difficult to fathom as well. Anyway, regardless of…

Cloud Infographic – Cloud Fast Facts

Cloud Infographic – Cloud Fast Facts

Cloud Infographic – Cloud Fast Facts It’s no secret that Cloud Computing is more than just a buzz term as that ship has sailed off a long time ago. More and more companies are adopting the uses and benefits of cloud computing while aggressively factoring cloud services spending into their budget. Included is an excellent…

Cloud Infographic – The Future Of Big Data

Cloud Infographic – The Future Of Big Data

The Future Of Big Data Big Data is BIG business and will continue to be one of the more predominant areas of focus in the coming years from small startups to large scale corporations. We’ve already covered on CloudTweaks how Big Data can be utilized in a number of interesting ways from preventing world hunger to helping teams win…

Are Cloud Servers The Right Choice For Your Business?

Are Cloud Servers The Right Choice For Your Business?

Cloud servers offer power, flexibility, reliability, and client friendly hosting for small and medium businesses that have outgrown shared hosting. New business hosting clients are bombarded with an incredible diversity of different choices for their site’s hosting. It can be a challenge to negotiate the range of platforms and the marketing hype that many hosting…

Featured Sponsors

Salesforce Service Cloud: Air Traffic Control For Your Customer

Salesforce Service Cloud: Air Traffic Control For Your Customer

Salesforce Service Cloud One of the greatest benefits of the increasingly reliable and ubiquitous state of cloud technology is the removal of business silos and the consolidation of information flow, both in-house and on the road. This is of particular importance to the many different types of professionals whose work involves customer relationship management (CRM).…

Watching You Shop: Stores And Mannequins “Read” Their Customers And Respond

Watching You Shop: Stores And Mannequins “Read” Their Customers And Respond

Watching You Shop The mannequin in the store window stares blankly ahead as shoppers look at the clothes it is dressed in and contemplate a purchase. One shopper makes some comments. “It’s nice. I wonder if they have my size.” Another takes a few steps inside the store to see where these particular clothes might…

Cloud Logo Sponsors

hp Logo CityCloud-PoweredByOpenstack-Blue square_logo_100x100-01
cisco_logo_100x100 vmware citrix100

2015 Advertising Opportunities - Find Out More!

Established in 2009, CloudTweaks is recognized as one of the leading influencers in cloud computing, big data and internet of things (IoT) information. Our goal is to continue to build our growing information portal, by providing the best in-depth articles, interviews, event listings, whitepapers, infographics and much more.

Contact

CloudTweaks Media
Phone: 1 (212) 763-0021

Join Our Newsletter