Reality and Rackspace
SAN DIEGO (TheStree) - Quentin Hardy's New York Times piece this morning about Google's ( GOOG) aggressive push into cloud computing, with pricing to match, would not appear to be what the doctor ordered for Rackspace ( RAX).

As good as Rackspace's technology, marketing and customer service may be, the reality: The cloud (renting space on servers) is a commodity. Proof is in the pricing, and the big guys like Google, Microsoft (MSFT), IBM (IBM) and Amazon (AMZN) are more than willing to use it as a loss-leader.

The impact gets buried in their results, but not Rackspace's, whose margins and growth are going the wrong direction.

That's why its stock has been halved over the past year, making me wonder: When does it reach a point that, for all that it does well -- not to mention its market share -- it gets bought up by one of the big guys?

One hurdle may be valuation: It trades at 53-times trailing earnings; 48-times forward. But only 3.5-times sales. Value, of course, is in the eyes of the beholder.

-- Written by Herb Greenberg

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