January 28, 2011
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they’re material to our investing thesis.
What: Shares of Rackspace Hosting (NYSE: RAX ) soared as much as 11% in intraday trading Friday after Verizon announced a $1.4 billion acquisition of Terremark Worldwide.
So what: The rally makes sense in that Rackspace and Terremark are peers. But the early gains were clearly overdone. Rackspace was already worth more than twice Verizon's bid before the open today. The stock has since rallied 5%, resulting in a better than $4 billion market cap.
Now what: And yet more gains are likely. Rackspace is the class of its industry, thanks to a loyal and growing base of cloud-computing customers who are addicted to its fanatical levels of support. Any bid would have to add a significant premium for the company's efficient network, which has become legendary for producing outsized returns on capital.
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