Stock Cheat Sheet: Rackspace Hosting

Get to know a company in less than five minutes: That's what a Motley Fool Cheat Sheet is all about. If you're new to Rackspace Hosting (NYSE: RAX  ) , consider this your Foolish way to get introduced and in the know.

What it does: Rackspace is the self-described "world leader in the hosting and cloud computing industry." The company owns and deploys 64,000 servers worldwide and provides hosting services to almost 120,000 unique customers. These are companies both large and small that simply do not have the resources or the core competencies to purchase, set up, and continuously manage their external-facing websites and their internal IT networks. Rackspace offers a wide selection of hosting options that range from all-hands-on-deck dedicated hosting to more basic software-as-a-service packages.

The company benefits from its scale by employing cloud-computing technologies. Cloud computing allows unused processing power to be recycled for active use in a sort of carpooling-for-computers manner. That means less waste and more efficient use of the company's enormous server farms.

Who they are: CEO Lanham Napier has been with the company since 2000, and CEO since 2006. Between him, Chairman Graham Weston, and others, insiders own over 20% of Rackspace's common shares outstanding. Rather than a singular focus on EPS growth, executives at the company are judged and incentivized across a diverse group of criteria, including how well they grow their customer base, reduce churn, and improve return on capital.

How it stacks up: Since the hosting industry is highly competitive, with traditionally low differentiation and consequently low margins, Rackspace attempts to set itself apart with its "Fanatical Support" model of emphasizing customer service and building loyalty. Along with the company's focus on efficiency, this has managed to set Rackspace apart with higher returns on capital than other hosting pure-plays.

Companies

Total Revenue
(in millions)

Capital Expenditures as % of Revenue

FCF Margin

Return on Capital

Rackspace

$735

18%

8.3%

8.2%

Equinix (Nasdaq: EQIX  )

$1,118

48%

(21.6%)

4%

SAVVIS (Nasdaq: SVVS  )

$900

24%

(5.3%)

1.9%

Terremark Worldwide (Nasdaq: TMRK  )

$321

49%

(36.5%)

3.3%

Why you should care: Among many other firsts, the Obama administration also appointed the first U.S. chief technology officer. The creation of this new role symbolized our society's increasing dependence on IT and the services of companies like Rackspace. As more and more organizations start moving their operations to the digital realm, expect to see this sector continue to grow and this industry leader with it.

To learn more about Rackspace, join us in a live chat with CEO Lanham Napier on Nov. 19 at noon EST. Mr. Napier will be taking questions directly from you, our Fool.com readers. Click below to set an email reminder so you don't miss out on this opportunity!

Motley Fool Rule Breakers analyst Sean Sun does not own shares of any of the companies mentioned. Rackspace Hosting is a Motley Fool Rule Breakers pick. The Motley Fool has a disclosure policy.


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