Rackspace: The Little-Known Cloud Winner
The San Antonio, Texas-based company's more than 172,000 customers, which include big-name firms such as Kraft Foods (KFT) , Under Armour (UA) and Vodafone(VOD) , prove that businesses are becoming increasingly comfortable with cloud services .
"It's clear that it's becoming a more acceptable way of addressing your IT needs compared to five years ago when it was kind of a fringe thing, and ten years ago, when it wasn't possible," explained Bryan McGrath, Rackspace's vice president of finance, in a phone interview. "More and more businesses are figuring out that using a cloud to run your applications is way better than doing it yourself."
Rackspace brought in revenue of $283 million during its recent fourth quarter , an increase of 32% on the same period last year, and comfortably above Wall Street's consensus estimate.
Total customers climbed to 172,510, up from 161,422 at the end of the third quarter.
"Enterprise is one of the pockets of strength
Set against this backdrop, shares of Rackspace have risen more than 22% this year, compared to just over 5% at IBM, and 4.5% at Amazon. AT&T's shares are flat over the same period.
McGrath said, that, although it's a much smaller company than cloud rivals such as IBM and AT&T, Rackspace has a key weapon in its armory. "We only do cloud," he said. "If we focus on one thing, and focus on doing it well, we can pack a bigger punch than some of the big guys.
Rackspace also saw a "healthy uptick" in growth from existing customers, according to McGrath. "This means that the assets we're running for them are getting bigger or that we're running more applications," he said.
Pat Walravens, an analyst at JMP Securities, believes that this is a key trend for investors. "In our opinion, the most important metric to track in this model is install base growth, which accelerated in the fourth quarter," he explained, in a note.
Walravens, who has a market perform rating on Rackspace, raised the firm's price target to $58 from $48 following the company's fourth-quarter results. The analyst sees Rackspace's biggest challenge as recruiting enough staff to support its growth.
Rackspace added 241 new hires during the fourth quarter, according to McGrath, taking its total workforce to just over 4,000 employees. Although the executive would not divulge the firm's specific recruitment plans, he promised that Rackspace is "hiring like crazy" at the moment.