Rackspace IPO Overview

Rackspace Hosting (RAX) is a hosting provider for websites, web-based IT systems, and computing.

All quotations are from the company’s most recent S-1 filing, with links provided.

Business Overview (from prospectus)

Rackspace Hosting is the world’s leader in hosting. We deliver websites, web-based IT systems, and computing as a service. Our rapid growth is the result of our commitment to serving our customers, known as Fanatical Support®, and our exclusive focus on hosting. Our financial success is the result of responsible financial management and our disciplined, just-in-time approach to capital investment. During 2007, we had net revenues of $362.0 million. As of March 31, 2008, we served over 31,000 business customers of all sizes with more than 39,000 servers, over 750,000 business email accounts, and more than 43,000 cloud hosting domains. To deliver on our Fanatical Support Promise to our customers, we have created a culture that encourages passionate, engaged employees who we call “Rackers.” In 2008, Fortune magazine ranked Rackspace Hosting #32 on its list of “100 Best Companies to Work For.”

Offering: 15 million shares at $12-$16 per share. Net proceeds of approx. $162.6 million to be used to supplement existing sources of capital to finance growth plans, for working capital, and for general corporate purposes.

IPO Underwriters: Goldman Sachs (GS), Credit Suisse (CS), Merrill Lynch (MER)

Financial Highlights

Net revenues were $84.0 million for the quarter ended June 30, 2007 and $130.8 million for the quarter ended June 30, 2008, an increase of $46.8 million, or 55.7%..cost of revenues were $26.1 million for the quarter ended June 30, 2007 and $42.8 million for the quarter ended June 30, 2008, an increase of $16.7 million, or 64.0%...sales & marketing exp were $12.6 million for the quarter ended June 30, 2007 and $19.8 million for the quarter ended June 30, 2008, an increase of $7.2 million, or 57.1%...G&A exp. were $24.3 million for the quarter ended June 30, 2007 and $38.1 million for the quarter ended June 30, 2008, an increase of $13.8 million, or 56.8%.

Competitors

We operate in a highly competitive market that is evolving rapidly. Our principal areas of competition include: 

Do-it-Yourself Solutions - Businesses may choose to house and maintain their own IT systems or use a colocation provider to house the IT hardware and provide connectivity. Companies that provide colocation services include AT&T (T), Equinix (EQIX), SAVVIS (SVVS), Switch & Data (SDXC) , and telecommunications companies.

IT Outsourcing Providers - Businesses may choose to outsource their entire IT system and computing operations to an IT outsourcing provider rather than use our hosting services. Companies that provide IT outsourcing include CSC (CSC), EDS (EDS), and IBM (IBM).

Hosting Providers - Businesses may choose to use a hosting provider other than us to provide services and support for their IT systems. Companies besides us that are in this category include AT&T, IBM, Pipex (PIPXF), SAVVIS, Terremark (TMRK), The Planet, and Verio. We also expect to face competition from new market entrants such as Microsoft (MSFT), Google (GOOG), and Amazon (AMZN), who have already, or are expected to, offer hosting services, particularly in the “cloud” hosting area.

Resources 

• Company website
• Retail roadshow
• Hostsearch: IDS Logic Partners Ties Up With Rackspace, Launches Money Back Guarantee Web Hosting
• PR Newswire: The Phone Store, Inc. and Rackspace Hosting Announce Solution Partnership Agreement, Co-Marketing Activities

Comments

[InternetCav...:]

This is definitely and untapped market for investors, as Full Internet Solutions Providers either didn't exist, or were eclipsed by the TelComm giants (aging dinosaurs in my opinion). Now with players emerging, and a new market opening up, a new competition to become the leader in this industry, begins.

Reports are that Rackspace's quick growth, may be their Achilles Heal, as they struggle to maintain their services (both product and customer services) with the same level of quality as when they first launched. Not a good sign for investors, not to mention the frustration and resentment from customers that will arise. Seems to be a repetition of what the large TelComms have been providing/failing at for the last few years.

Forget about Rackspace's IPO offering. I'd invest in a Canadian Company with already a World Footprint - PEER1 Network, ahead of Rackspace in many ways, offering a multitude of solutions for the small, medium, and large business markets, and truly interested in helping clients grow to fill their own business requirements.

Their Network, has recently undergone a complete upgrade to the new 10GB/OC192, providing the highest bandwidth possible.

Listed on the Toronto Stock Exchange under PIX(PIX:TSX), I recommend investing here instead.
Check them out:
www.peer1.com
www.serverbeach.com
www.peer1.com/investor...
findarticles.com/p/art...

2008 Aug 07 02:37 PM

[Toppy:]

"and truly interested in helping clients grow to fill their own business requirements."

That sure is a weighted sentiment. From my experience, in contrast to most webhosting companies, Rackspace is more than just interested in helping clients grow, they are actively involved. I hope that in a market of failures, they continue to grow as they have been doing consistently. A buy for me!


On Aug 07 02:37 PM InternetCave man wrote:

> This is definitely and untapped market for investors, as Full Internet
> Solutions Providers either didn't exist, or were eclipsed by the
> TelComm giants (aging dinosaurs in my opinion). Now with players
> emerging, and a new market opening up, a new competition to become
> the leader in this industry, begins.
>
> Reports are that Rackspace's quick growth, may be their Achilles
> Heal, as they struggle to maintain their services (both product and
> customer services) with the same level of quality as when they first
> launched. Not a good sign for investors, not to mention the frustration
> and resentment from customers that will arise. Seems to be a repetition
> of what the large TelComms have been providing/failing at for the
> last few years.
>
> Forget about Rackspace's IPO offering. I'd invest in a Canadian Company
> with already a World Footprint - PEER1 Network, ahead of Rackspace
> in many ways, offering a multitude of solutions for the small, medium,
> and large business markets, and truly interested in helping clients
> grow to fill their own business requirements.
>
> Their Network, has recently undergone a complete upgrade to the new
> 10GB/OC192, providing the highest bandwidth possible.
>
> Listed on the Toronto Stock Exchange under PIX(PIX:TSX), I recommend
> investing here instead.
> Check them out:
> www.peer1.com
> www.serverbeach.com
> www.peer1.com/investor...
> findarticles.com/p/art...

2008 Aug 08 04:07 AM