Rackspace's 'Dutch' Route Offers Hope

By contrast, Netsuite (N Quote) -- the fourth largest Dutch-auction IPO since 2000 -- priced well above its initial range amid huge buzz. And although it rose another 37% on its first day, it's now 34% below its offering price of $26.

Overall, Dutch-auction IPOs that raised more than $100 million and priced within or below the midpoint of their original range were more likely to produce positive long-term performance. That phenomenon describes Rackspace, so based on that trend, the report says, "Rackspace's stumbling debut may not be indicative of the stock's long-term return potential."

I asked Therian whether he thought Rackspace's falling margins, coming at a time when IT spending is down, would be a concern in the future. "They came to market to get additional capital, and that's putting pressure on them," he said.

Rackspace's margins have come down as it has expanded data centers. "As they fill new space in the data centers, their margins are likely to come up."

The build-out isn't finished. In its prospectus, Rackspace says it will spend $335 million in capital spending this year -- $160 million for a new headquarters in San Antonio, Texas, more data centers, and $175 million to buy new IT equipment.

Rackspace has its share of challenges before it, especially as long as the market remains choppy, but it's encouraging to hear some argue that the recent past of the stock isn't necessarily prologue of what lies ahead.