Rackspace Hosting has stepped up advertising and acquisitions aimed at corporate customers, as investors await a payoff from its OpenStack cloud software strategy.
Shares of Rackspace (RAX) have dropped 37.5% since early February, erasing much of 2012's 62% gain. A big question is whether Rackspace's revenue growth will reaccelerate; Q4 marked the fifth consecutive quarter of slowing sales year-over-year.
To spur growth, analysts say San Antonio-based Rackspace needs more customers to climb aboard OpenStack, the cloud computing standard Rackspace co-developed and has championed.
Last month, Rackspace launched an ad campaign touting OpenStack as the next big thing in open source, following Linux and Android.
Also in March, Rackspace purchased Exceptional Cloud Services, its third acquisition in seven months. It's rushing to add software and services that make it easier for corporate customers to use OpenStack. The software runs on computer servers in data centers, enabling customers to connect to public, shared cloud services.
Rackspace gets one-fourth of revenue from cloud infrastructure services, though it lags far behind leader Amazon Web Services, the cloud arm of Amazon.com (AMZN).
Aiming to create a standard and give itself a tool to compete against Amazon, Rackspace turned its OpenStack code and trademark over to a foundation that now has some 150 tech company members.
"Rackspace is arguably a pioneer in infrastructure-as-a-service," said James Staten, an analyst at Forrester Research. "Rackspace has done a lot of their own technology, adding services and capabilities. Anything that helps you deliver IaaS helps you deliver traditional hosting (services) as well.
"But Openstack is still maturing."
Downgrade, Lower Price Target
On Tuesday, Wells Fargo downgraded Rackspace to sector perform from outperform, saying it's in a transition period that could drag on the stock in the next six to 12 months, and that its IaaS business could slow growth of its Web-hosting business.
On Thursday, Cowen & Co.'s Colby Synesael maintained a neutral rate but lowered his revenue forecast to 2013 growth of 20.8%, from his previous estimate of 23.9%.
In IaaS, customers rent computer servers and data storage in remote data centers and access. Rackspace's problem is that price cuts by AWS, Google (GOOG) and Microsoft (MSFT) are driving down already-thin IaaS profit margins.
Three-fourths of Rackspace's revenue still comes from website-hosting services. With OpenStack, Rackspace aims to develop new managed cloud services, with higher profit margins. Under that model, Rackspace would have remote access to OpenStack-equipped corporate data centers.
source: news.investors.com
