Rackspace: The Little-Known Cloud Winner
SAN ANTONIO (
) --
Rackspace
(RAX)
might not be as well known as
Amazon
(AMZN) - Get Report
,
AT&T
(T) - Get Report
and
IBM
(IBM) - Get Report
but the company has quietly carved out an impressive niche in the growing cloud market.
The San Antonio, Texas-based company's more than 172,000 customers, which include big-name firms such as
Kraft Foods
(KFT)
,
Under Armour
(UA) - Get Report
and
Vodafone
(VOD) - Get Report
, prove that businesses are becoming increasingly comfortable with
.
|
"It's clear that it's becoming a more acceptable way of addressing your IT needs compared to five years ago when it was kind of a fringe thing, and ten years ago, when it wasn't possible," explained Bryan McGrath, Rackspace's vice president of finance, in a phone interview. "More and more businesses are figuring out that using a cloud to run your applications is way better than doing it yourself."
Rackspace brought in revenue of $283 million during its
, an increase of 32% on the same period last year, and comfortably above Wall Street's consensus estimate.
Total customers climbed to 172,510, up from 161,422 at the end of the third quarter.
"Enterprise is one of the pockets of strength
for Rackspace," said McGrath, noting that it's expensive for firms to keep up with the "latest and greatest" server and software technologies.
Set against this backdrop, shares of Rackspace have risen more than 22% this year, compared to just over 5% at IBM, and 4.5% at Amazon. AT&T's shares are flat over the same period.
McGrath said, that, although it's a much smaller company than cloud rivals such as IBM and AT&T, Rackspace has a key weapon in its armory. "We only do cloud," he said. "If we focus on one thing, and focus on doing it well, we can pack a bigger punch than some of the big guys.
Rackspace also saw a "healthy uptick" in growth from existing customers, according to McGrath. "This means that the assets we're running for them are getting bigger or that we're running more applications," he said.
Pat Walravens, an analyst at JMP Securities, believes that this is a key trend for investors. "In our opinion, the most important metric to track in this model is install base growth, which accelerated in the fourth quarter," he explained, in a note.
Walravens, who has a market perform rating on Rackspace, raised the firm's price target to $58 from $48 following the company's fourth-quarter results. The analyst sees Rackspace's biggest challenge as recruiting enough staff to support its growth.
Rackspace added 241 new hires during the fourth quarter, according to McGrath, taking its total workforce to just over 4,000 employees. Although the executive would not divulge the firm's specific recruitment plans, he promised that Rackspace is "hiring like crazy" at the moment.
McGrath also explained that Rackspace plans to expand its product offerings in 2012, launching new server load balancing and database services as well as a higher performance storage offering.
Around 80% of Rackspace's revenue comes from "dedicated" cloud services, or applications that the company hosts on servers devoted to specific customers. The remaining 20% of the firm's sales come from its "public" cloud, a pool of Rackspace hardware and software that is not specifically allocated to a given customer.
Rackspace shares were down 46 cents, or 0.87%, to $52.47 on Tuesday.
--
Written by James Rogers in New York.
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