Rackspace and the IPO Follies

August 11th, 2008 by · 2 Comments

On Friday, Rackspace (RAX) went public, and its IPO was widely panned as a failure.  The stock finished at $10.01, below the $12.50 it had been priced at.  The whole IPO-day rat race has seemed stupid to me for a long time.  After all, it sounds as if the people who had a bad day were the institutional investors who bought at $12.50.  Rackspace had a good day, they managed to sell 15M shares at 25% above what the market thought they were worth!

Ah well, I never mess with IPOs on general principle.  A ‘successful’  or ‘unsuccessful’ IPO is only a measure of market psychology and nothing else.  Rackspace itself is the same company it was before: a premier provider of hosting infrastructure, and I welcome them to the public markets, because they help fill a hole in the internet infrastructure sector.  There are other hosting and managed services providers that are public companies, but only a few focused so directly on that sector which are of any size.  Savvis (SVVS) is there, but they are also a network and a raw colo space provider.  There is NaviSite (NAVI), but they are pretty small.

Rackspace on the other hand is a billion-dollar, profitable company that can serve as a bellweather for its industry.  How are rising energy costs affecting the denizens of datacenters?  Is the rate of growth in installed servers really accelerating as much as it should?  Are bandwidth costs rising or falling?  We should be able to see it in undiluted form in Rackspace’s results because these questions are material and will be addressed directly by the company in its filings.

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Categories: Datacenter · Financials

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