Uh-Oh, It's an IPO
By
Rick Aristotle Munarriz
August 8, 2008
|
Those cool IPO waters are apparently still quite chilly.
This morning's market debut of webhosting giant Rackspace (NYSE: RAX) has been as grim as a "server down" warning. The company was initially looking to price its shares as high as $16, but it settled for a $12.50 price last night. That's bad, but opening at $10 this morning is even worse.
It's a shame, because this is usually the kind of tech stock that the market can rally around in good times. Rackspace is growing nicely, and it's consistently profitable. Webhosting may be seen as a cutthroat commodity, but the company also has the "cloud computing" buzz working for it, as software makers turn to hosts to reliably serve their applications.
Tech is still a growing industry, but investing appetites want a different breed of debutante. Some of the hottest IPOs over the past year or so include energy exploration plays like Concho Resources (NYSE: CXO) or agricultural movers like Titan Machinery (Nasdaq: TITN).
Mr. Market hasn't warmed up to tech IPOs like Rackspace. It may be the competitive environment. Investors have seen another server farm niche -- content delivery networks -- come under pressure, as Akamai (Nasdaq: AKAM) battles smaller rivals like Limelight Networks (Nasdaq: LLNW).
Rackspace is no slouch. Its Rolodex is thick with 33,000 clients. It rang up $362 million in revenue last year, growing at a 59% annualized clip over the past five years. Earnings growth has been even kinder, going from $0.2 million to $17.8 million over the same five years.
Redemption will come, as long the company keeps growing. Once the market feels that companies won't go hog wild on scaling back their IT budgets, Rackspace will win the applause it didn't get today. Between now and then, it's really just a matter of a "404 error: Optimism not found."
Other ways to go public:
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