Watch stocks you care about
The single, easiest way to keep track of all the stocks that matter...
Your own personalized stock watchlist!
It's a 100% FREE Motley Fool service...
Investing decisions are made from a mosaic of data, yet synthesizing what matters can be tough. Enter the Fool poll. We show you the Big Headlines, and you tell us what’s factoring into your investing decisions and help your fellow Fools in the process.
Stocks benefiting from the cloud-computing revolution have taken their share of lumps lately. Would-be WiMAX king Clearwire (Nasdaq: CLWR ) looks like a pauper, Akamai Technologies (Nasdaq: AKAM ) is failing to live up to its growth promises, and comScore -- tracker of all things Web -- is tracking for lower 2011 revenue growth.
Signs of hope aren't easy to find, unless you're looking in the relatively low-tech metropolis of San Antonio, Texas. There you'll find Rackspace Hosting (NYSE: RAX ) , whose servers host the Web infrastructures of more than 150,000 companies at last count, including such diverse companies as Domino's Pizza (NYSE: DPZ ) and Newell Rubbermaid (NYSE: NWL ) .
Year-over-year revenue growth accelerated for the third consecutive quarter, up 32% to $247.2 million. Rackspace is now running at $1 billion in revenue annually, CEO Lanham Napier said during Thursday's earnings call with analysts. The company's 70,000-plus servers now play host to more than 152,000 customers.
More impressive, I think, is that returns on capital continue to rise as incremental investments pay off. For Q2, Rackspace earned 14.4% on its invested capital, up sharply from last year's 10.9%. All signs point to efficient growth, even in the face of stiff competition from Amazon.com (Nasdaq: AMZN ) as well as specialists that tack hosting onto other services, such as 8x8 (Nasdaq: EGHT ) .
In an interview earlier this week, Rackspace Director of Finance Bryan McGrath cited the secular trend toward outsourcing infrastructure as the biggest growth driver, but I suspect that the company's commitment to "Fanatical Support" is also at work. Churn, a measure of customer turnover, has averaged under 0.9% in each of the past two quarters.
Strong growth. Loyal customers. Efficient use of capital. Forget that the phrase "cloud computing" is even a part of this stock story. Doesn't that sound like the sort of business you want to own?
Please vote in the poll below, and then leave a comment to tell us your thoughts about Rackspace's business, valuation, and competitive positioning. You can also add the stock to your watchlist for up-to-date analysis as soon as it's published.