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Content Tagged Rackspace
Rackspace Tests The IPO Waters Today; Settles For Half The Price It Was Hoping For
After filing for an IPO last April in which it hoped to raise $400 million, Web hosting provider (and cloud-computing aspirant) Rackspace finally priced its IPO last night at $12.50 a share. That would have brought in $187.5 million, or half what it was hoping for. But it opened this morning at $10 (ticker: RAX). It’s been been going up since then to about $11.
And Rackspace is a solid company financially. But in this market, any IPO is a sign of hope (there were no VC-backed IPOs last quarter). Rackspace backed off from an IPO once before, in 2000. It’s been champing at the bit to go public for a long time. It looks like the shares are trading up. Let’s see where they end the day.
(Disclosure Rackspace is a TechCrunch advertiser).
Update: Rackspace ended its first day of trading at the same price where it opened: $10. Not a confidence builder for other IPO-aspirants.
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Tech IPOs Return With Rackspace
After a long dry spell, technology initial public offerings took a small step towards a comeback as Rackspace Hosting, a San Antonio, Texas-based company, announced its IPO. The company that will trade on the NYSE under the ticker RAX is selling about 15 million shares at $12.50 each, in the process raising about $187.5 million from the market. That would give the company a valuation of around $1.45 billion. Goldman Sachs, Credit Suisse and Merrill Lynch are joint bookrunners on this deal. The deal should come as a big win for local VC heavyweights Norwest Venture Partners and Sequoia Capital, too — they own 16.2 percent and 11.6 percent of RackSpace respectively.
The company had wanted to raise around $276 million (by selling up to 17 million shares at $16 a pop), but had to settle for a much lower valuation, one that is reflective of today’s tenuous economy. The fact that Rackspace has gotten out of the gate in the dog days of summer is a good sign for similar high-revenue, high-quality tech companies in the pipeline. In a previous article we noted that Rackspace was raising money to expand its hosting infrastructure, expand rapidly into the fast-growing cloud computing sector and to offer services for small- and medium-sized businesses.
Disclosure: Rackspace is an advertiser on the GigaOM Network.
STRUCTURE 08: Working the Cloud Panel
Oooh, our first panel of the morning, Working the Clouds: NextGen Infrastructure for New Entrepreneurs. We’ve got a six-person lineup to give us their perspectives, and our own Alistair Croll to throw them questions. The lineup includes:
- Christophe Bisciglia, Senior Software Engineer with Google
- Jason Hoffman, Founder, CTO of Joyent
- Tony Lucas, CEO of XCalibre Communications
- Lew Moorman, SVP of Strategy and Corp Dev, Rackspace
- Geva Perry, CMO of GigaSpaces
- Joe Weinman, VP of Strategic Solutions at AT&T
Here are some notes:
Alistair: When we are moving to clouds, are we selling our souls? Should we be happy with our cloud overlords?
AT&T Joe: I have a prediction that is not surprising. There will be a proprietary stack and there will be an open business model based on the cloud that will leverage standards, commodization, price-compression, and differential vs dynamic pricing.
GigaSpace’s Geva: There’s room for both models. People are talking about specialized clouds.
Joyent’s Jason: The question is is it about selling your soul. You can’t leave. Until Google open sources Big Table . . .
Alistair: Fluffy clouds was coined here at Structure 08 (chuckles).
XCalibre’s Tony: Google’s Big Table is basically a lock in.
Google’s Christophe: I claim that Google is possibly a little bit ahead as far as Big Table. But people can build a better mouse trap and come in and compete. It’s a developer preview, but the theory is that the API is open and not locked down.
Joyent’s Jason: There’s been a lot published on what an open, loving cloud should do. We should give people real assurances that the cloud is a good place to be.
Google’s Christophe: When we publish something on Big Table it is not to say that it’s a lock-in, but it’s our attempt to say that this is something that worked for us.
XCalibre’s Tony: Why not open Big Table completely if you know better than everyone else?
Google’s Christophe: Big Table is a compromise that is scalable. There’s nothing about the API that says you have to do this with Big Table.
XCalibre’s Tony: One of the big problems that companies need to figure out is licensing.
AT&T Joe: The dirty secret of the cloud is that companies need to figure out the licensing models, or it will be forced to fold. The whole idea will drop dead of its own weight.
Alistair: There are two theories: put everything in the cloud and put more out at the edge. What’s the setup for Google?
Christophe’s Google: We have geographically distributed clusters. A lot of services are replicated. We want to make sure that if you trust us with your email, the most current copy might be in a datacenter closer to you.
AT&T Joe: “Architecture 3.0.” We don’t have all the nuts and bolts that will work it out. But an optimal mix of edge and keeping core information in the data center.
Alistair: Can we have our old toys? Can we put all our toys in the cloud environment?
Joyent’s Jason: Absolutely. If we want people to be on the cloud, we have to make sure that this occurs.
Geva’s GigaSpaces: Or make it look like our old toys. Use all of the APIs.
Christophe’s Google: It’s important to find a compromise. When we deal with enterprise we can’t tell them to move into the cloud and do it differently. But five years from now its important for people to build apps that can serve millions of users — then people have to think about building apps differently. We need to provide tools for people to build apps for the cloud.
Geva’s GigaSpaces: Vogel said earlier all you need is a credit card, but that’s not what big corporations want. They want help with services.
Lew’s Rackspace: There’s also a big problem with marketing — cloud means something new everyday.
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RackSpace IPO Filing Hints at Expansion Plans
Data center and hosting provider RackSpace Inc., has filed to raise up to $400 million in an initial public offering. Its financials seem generally sound (unlike many tech companies it’s actually profitable), although profits did drop by 10 percent in the last year.
However, rapid expansion (including its investment in the cloud) are to blame for the decline in profits. The company made $362 million last year and more details can be gleaned from its S-1 filing with the Securities and Exchange Commission. Some tidbits of interest include RackSpace spending $7.3 million in power used to operate 36,692 servers in 2007.
In the coming year, the company anticipates expanding its data center facilities by a least 72,000 square feet, and may also opt to find a new data center location outside of its existing facilities. It also plans to launch a platform product for customers who want hosted infrastructure but also have the need and skills to customize the hosted infrastructure to a high degree.
The San Antonio company follows in the footsteps of Google and NetSuite with its auction-style offering. Should the offering go well investors Sequoia Capital and Norwest Venture Partners stand to gain. The two firms hold 11.6 percent and 16.2 percent of RackSpace stock respectively.
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Update: Rackspace Files IPO, Will Set Price Via Auction
Web hosting provider Rackspace filed for an initial public offering with the SEC last night, as we predicted it would. The company will try to raise $400 million, and it intends to set the IPO price through an auction, much like Google did. The underwriters are Goldman Sachs, Merrill Lynch, Credit Suisse, and WR Hambrecht & Co. (the leading proponent of such IPO pricing). Pricing through an auction is designed to make sure the company raises the most money possible instead of giving up a first-day pop to investors who are allocated shares by the investment banks doing the deal. Shares will still be allocated to such clients, but anyone who bids beforehand in the auction at or above the eventual IPO price will also get shares. All in all, it is a much more efficient way to price an IPO and more companies should do it.
With the filing we also get a clearer picture of Rackspace’s business and financials. Its revenues grew 62 percent last year to $362 million, but it posted net profits of $17.8 million, which were down 10 percent from the year before. Cash flows from operations, though, remained healthy at $105 million last year, up from $61 million in 2006. (Click on the table below for a bigger image and more data):
The decline in profits was because the company spent a lot more staffing up and spending more on sales and marketing. About half of the $53 million increase in its cost of revenues last year was attributable to the fact that it nearly doubled the number of employees to 2,021 (of that, data center employees went from 576 to 994, and sales and marketing headcount went from 224 to 353). Servers, software licensing costs, bandwidth, power and rent made up most of the rest of the increase.
Another interesting tidbit: that truck accident that took down one of its data centers in Texas last November cost the company $3.4 million in credits to customers.
At the end of the year, it had 29,193 customers, compared to 12,677 the year before. But nearly all of that growth was due to its acquisition of Webmail.us (i.e., they are hosted e-mail customers, not hosted Website customers). Rackspace has 36,692 servers across seven data centers, 114,749 square feet of data center space, with a 61 percent utilization rate. The company makes $3,504 a year per square foot, a number that has been growing nicely, illustrating that Web hosting is a scale business with increasing returns the more servers that can be rented out.
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Eight Years Later, Is Rackspace Finally Going To Try For Another IPO?
The last time Web hosting provider Rackspace filed for an IPO was back in March, 2000, at the peak of the first Internet bubble. Now, it may be about to do so again. Perhaps as soon as tomorrow or Monday, according to one tipster who tells us that email to that effect are circulating inside the company. (Rackspace is a TechCrunch advertiser, but our source is not an employee).
There are no filings yet with the SEC, but press releases touting its revenues have mysteriously been stripped from the company’s site. Here is one that’s been cached, announcing 2006 revenues of $224 million. Various reports put quarterly revenues for 2007 at $75 million, $84 million, and $96 million, respectively for each of the first three quarters, which suggests that full-year 2007 revenues were north of $350 million. Rackspace claims to be profitable, and has more than 15,000 customers. A major outage last November caused by a traffic accident near its Dallas data center was noticed across the Web.
Rumors of an IPO have been swirling recently. The company just hired a new chief financial officer on March 31. Last October, it acquired Webmail.us and it offers cloud computing services that compete with Amazon’s Web Services through its Mosso brand. In January, it shifted strategyto emphasize its utility computing business model.
It is time to pull the trigger.
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March 10, 2007: Private Online Storage Gets $2.7M
- BroadbandReports: Israel Latest to Force ISPs to Block Piracy
- Reuters: Logitech Says Any Microsoft Bid “Without Sense”
- Virtualization for Everyone: Interview with Rackspace CTO
- InfoWorld: Former Head of Motorola Handset Business Leaves
- ArsTechnica: Bad Phorm? UK ISPs sell Clickstream Data to Advertisers
- SAI: Storage/Sharing Site Drop.io raised $2.7 million
[from bushwald] Rackspace Offers Cloud Computing with Mosso
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37Signals Down - Looks Like Rackspace Is To Blame Again
37Signals is having a bad morning, according to their current home page image above. They’re pointing fingers at their service provider, which was (and we believe still is) Rackspace. Last November they suffered a three hour outage along with other Rackspace customers.
Update: It’s back up, total outage was about 2 hours. Per the comments, 37Signals doesn’t seem super duper happy with Rackspace these days.
Rackspace Enters Small Biz Email Race With Webmail.us Buy
Small- and medium-sized businesses are the hot target markets right now, whether it’s voice and broadband or web services. The biggest opportunity, however, seems to be in hosted email, as Yahoo’s (YHOO) $350 million bet on Zimbra and Google’s (GOOG) Apps initiative demonstrate.
Rackspace, a San Antonio, Tex.-based managed hosting company, today made its own move to tap the opportunity by acquiring eight-year-old Webmail.us of Blacksberg, Va. The purchase price wasn’t disclosed, but I suspect it was a substantial amount of money.
With some 70,000 companies as clients and 600,000 paying business email accounts, Webmail.us expects to have revenues of around $6 million in 2007. It is popular because of its spam protection features, quality service, and a web interface that is both rich and just generally impressive.
Rackspace, meanwhile, is rumored to be in the running for an IPO. Its acquisition of Webmail.us is another way to distinguish itself from being just a hosting company. Lew Moorman, senior vice president of corporate strategy and product development at Rackspace, believes the opportunity for offering email services to small- and medium-sized businesses is wide open, even with competition from Yahoo and Google.