Rackspace Needs This Strategy to Work

After years of playing offense in the cloud computing market, Rackspace Hosting (NYSE: RAX  ) finds itself in the uncomfortable position of playing defense, Fool contributor Tim Beyers says in the following video.

Recently, the company introduced what it calls Performance Cloud Servers. The amped-up offering promises an overall 2.6 times boost in overall efficiency for handling large jobs in the cloud, good news when so many larger peers are beefing up their own cloud infrastructures. Microsoft, for example, recently added more support for Hadoop and Big Data analysis in its Azure cloud offering. Amazon.com also recently announced several meaningful improvements to Web Services.

Rackspace's new infrastructure means more options for clients who'd otherwise look to larger competitors. Longer term, Performance Cloud Servers could help the company spin up entirely new services that yield more revenue at a higher margin. Investors should demand nothing less, Tim says.

Now it's your turn to weigh in. Do you like Rackspace's strategy? Would you buy, sell, or hold the stock at current prices? Please watch the video to get Tim's full take, and then leave a comment to let us know what you think.

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Comments from our Foolish Readers

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  • Report this Comment On November 20, 2013, at 4:38 AM, magmata wrote:

    I think Rackspace need to be very careful that they don't find themselves adrift. Let's be honest they aren't going to beat AWS, Google or Microsoft at an infrastructure level in a straight punch for punch fight. Every update,release, comment around IaaS is another wasted attempt to try and keep up. The reason they were and have been successul was nothing to do with the tin, it was around their values and approach for "fanatical" support. What do you think matters more to customers as a headline message "an open cloud" or "fanatical support"?. Until they nail a strategy that blends cloud + managed services and stop being a magpie looking at AWS they are going to fall short..IMHO.

  • Report this Comment On November 22, 2013, at 6:51 PM, 11171940 wrote:

    I have a 47% loss in my stock. What should I do before year end?

    Brad

  • Report this Comment On November 26, 2013, at 12:36 PM, Estrogen wrote:

    Hi Brad,

    I also took a drubbing and sold. In your case, you need to look at your original thesis for buying the stock. If it is still in tack, I'd purchase more. in my case, I didn't realize the big boys (amazon, etc) were going to be fishing in the same pool. I have read enough since to lead me to believe that the cloud services RAX is providing is a commodity item. If so, there is no moat, so I couldn't rationalize owning the company any longer. I still keep up on updates to see if there is something I'm missing there. So far, not sure.

    If you think they have a competitive advantage that in their business, buy more. If not, I'd sell as you can not justify the steep ratios. Try to think of your stocks as long term ownership in a business.

    Bill

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