As IPO Nears, Rackspace Eyes the Cloud

For Rackspace, Thursday's initial public offering (IPO) is a major step in its push into cloud computing, which the company believes will eventually offer even better returns than managed hosting. The San Antonio-based company has been one of the most successful hosting companies. Profitable since 2001, Rackspace has spent the past year preparing for a next phase of growth built atop computing as a service and the ability to add capacity on demand.

"We think we have a huge opportunity ahead," Rackspace executive chairman Graham Weston said in a roadshow presentation for investors. "We're going public to seize that opportunity."

The Rackspace offering is expected to price between $12 and $16, and would end a lengthy drought for technology IPOs, as there were no venture-backed IPOs in the second quarter of 2008. If Rackspace sells all 17.25 million shares, the offering would fetch $207 million at the $12 low end of the pricing range, and $276 million at the $16 top end. Rackspace will trade under the symbol RAX on the New York Stock Exchange.

Despite the challenging environment, Rackspace executives told investors that they believe their fiscal discipline and strength of their existing managed hosting position the company to prosper. But Rackspace also emphasized the potential opportunity in cloud computing.

Rackspace is the market leader in managed hosting, the most lucrative niche in the hosting business, managing more than 39,000 customer servers. In early 2006 it launched Mosso to provide hosting on a cluster of services. In February Mosso was relaunched as The Hosting Cloud. But Mosso still represents a small segment of Rackspace's overall business, hosting 43,000 domains.

But Rackspace believes it will build a significant business in cloud hosting and email services, which it offers through MailTrust (formerly Webmail.us, which it acquired last year). "In the long run we believe they will be higher growth, higher margin businesses than our managed hosting," said Napier.

"We're here for the long term," said Napier. "We have not built this company to flip it. We're here to win. We're here to build something great."