More Topics:
Bulls Misunderstand the Rackspace Business Model
Posted July 19, 2011
We Recommend...
By Geoff Abbott
Rackspace (RAX) is the self-termed "leading specialist in the hosting and cloud computing industry." The company's stock has soared over the past year, riding a wave of enthusiasm about the cloud. We conducted an in-depth analysis both of RAX's business model and its operating results, and we've arrived at some conclusions very different from those advanced by RAX bulls and by the Wall Street analysts covering the stock. We think RAX is a very attractive short right now.
Rackspace offers off-site storage solutions and IT services to companies ranging from small start-ups to large multinationals. The company's value proposition is that customers can save money by implementing RAX solutions rather than investing in their own servers and maintaining their own IT infrastructure. We take no issue with this perspective. RAX management likes to point out the considerable growth potential in the hosting and IT service industry. However, as euphoric investors and their sell-side analyst allies too often forget, providing value to customers in a growing industry does not necessarily mean that those providing the services will achieve strong profitability. This is especially true in a competitive, commoditized, and capital-intensive industry. We believe Rackspace operates in such an envinronment. READ FULL ARTICLE
To find out more about the company in this article and to see if you
have business connections, click below:
blog comments powered by