Rackspace Hosting (f/k/a RAX)

[ciciagt]

3 Top 'Cloud' Stocks to Own in 2012

(page 4 of article)

Although hardly a household name like rivals AT&T(T_) and Amazon(AMZN_), Rackspace has quietly carved out an impressive niche in the growing cloud market.

Unlike many of its competitors, Rackspace focuses solely on cloud computing, a strategy that has served it well. The San Antonio, Texas-based firm recently continued its run of strong quarterly results, putting out impressive fourth-quarter results.

Walravens of JMP Securities expects this upward trajectory to continue.

"Rackspace is poised for continued growth because the market opportunity is lightly penetrated (less than 5%) and because the 'cloud services leader' message continues to resonate with enterprises big and small," he said in a recent note. "We believe the company faces a massive market opportunity as companies look to a specialized cloud computing service provider to address their IT needs."

Around 80% of Rackspace's revenue comes from "dedicated" cloud services, or applications that the company hosts on servers devoted to specific customers. The remaining 20% of the firm's sales come from its pool of Rackspace hardware and software that's not specifically allocated to given customers.

Rackspace's total customers climbed to 172,510 at the end of the fourth quarter, up from 161,422 at the end of the prior quarter.

The company is also gearing up for a busy 2012, and is planning to launch a host of new products, such as server load balancing and database services, as well as a high-performance storage offering.

The cloud specialist clearly has plenty to offer investors in the future, as evidenced by its high price-to-earnings ratio of 97, indicating the potential for earnings growth. Rival AT&T, in contrast, has a price-to-earnings ratio of 46.

"The company's fanatical support message continues to resonate well with its customers," noted Walravens. The analyst, however, warned that Rackspace's biggest challenge is recruiting enough staff to support its growth.

Rackspace recently told TheStreet that it added 241 new hires during the fourth quarter, bringing its total workforce to around 4,000. The company is "hiring like crazy" at the moment, according to Bryan McGrath, the Rackspace vice president of finance.

TheStreeet Ratings rates Rackspace "buy."

--Written by James Rogers in New York.
http://investorshub.advfn.com/boards/post_new.aspx?board_id=16009