Friday, August 1, 2008

Rackspace IPO Will Be a Good Test

Next Friday will be the first day that Rackspace shows up on the New York Stock Exchange. The company is expecting to raise around US$ 2 billion in its IPO, and most of that money is likely to be spent on expanding the company's already massive datacenters. The Rackspace IPO will be a very interesting bellwether for this troubled economy, and depending on how the stock ends its day next Friday, we'll see a great indicator for how the market feels about technology.
When VMware went public last year, it was the darling of tech. Today, it's still flying high, with 90 percent stakeholder EMC turning in big numbers. But the VMware IPO came in a very different economy. Today, we have crumbling housing markets, an oil price crisis, escalating inflation and a country on the verge of a nervous breakdown. Does that bode well for launching a tech company into the stock market? The truth is, no one really knows.
There are many ways the IPO could go. With share prices expected to be around $16, the company is not entering the game like Google or Amazon did back in the day. Rackspace's share prices probably won't inflate into triple digits, as tech stocks were wont to do in the late 90's. On the other side of the coin, Rackspace won't be using this newfound capital to install swimming pools and golden parachutes: the management of the company is only taking around 300,000 shares. That's because Rackspace has repeatedly reminded Wall Street that it's only coming to town for the investment, not the fame and fortune.
With Rackspace having built around $500 million in yearly revenues on just over $40 million worth of investment, it's exciting to think what the company could accomplish with $2 billion under its belt. It is very likely that Rackspace could become the name most synonymous with server hosting, just as Google has done with search and VMware has done with virtualization.
With all that dough coming in, one thing is for sure: whoever is selling servers and switches to Rackspace is going to be very happy in the coming months.
-- Alex Handy

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