I Expect More From Rackspace Hosting

| About: Rackspace Hosting, (RAX)

"Fanatical Support" is what makes them what they are. We are talking about Rackspace Hosting (NYSE:RAX), the world leader in hosting and the cloud computing industry. Starting back in 1998, Rackspace is a trusted name to businesses, big or small.

On 13th of February, the company released the fourth quarter results of 2011. Here are the main highlights from the report. The company showcases strong financial progress, I must say.

  • Net revenue of $283 million, grew 32% year-over-year and 7.1% from Q3 2011
  • Adjusted EBITDA of $102 million, grew 42% year-over-year and 16.2% from Q3 2011
  • Achieved adjusted EBITDA margin of 36.1%, up from 33.5% year-over-year and 33.3% in Q3 2011
  • Net income of $25 million, grew 85% year-over-year and 25.3% from Q3 2011

Total server count increased to 79,805, up from 78,717 servers at the end of the previous quarter, and total customers increased to 172,510, up from 161,422 at the end of the previous quarter. Business is improving fast, and I hope this trend will continue as the world gets more internet-ized over time.

Operating income, standing at $39.8 million this quarter, improved a lot from previous quarter's $31 million, and previous year's quarter's $23.4 million.

But my question is, is it enough? No. Let's compare the company with two of the most popular rivals, Equinix Inc. (NASDAQ:EQIX) and Akamai Technologies (NASDAQ:AKAM).

From the above chart, when compared with the other two companies, the operating margin of Rackspace Hosting does not really impress us. Moreover, the PE ratio tells us that the company might be overvalued at the moment.

Going by the common sense, I may not purchase in Rackspace Hosting now.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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Tagged: , Internet Software & Services, Earnings
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