Rackspace the Sole IPO for Last 12 Months
March 20th, 2009 By: Rich Miller
The Wall Street Journal’s Venture Capital Dispatch blog writes about the IPO drought, noting that the U.S. stock market has seen just one venture-backed initial public offering in the past 12 months: Rackspace Hosting (RAX). “Even during the worst of times when the dot-com bubble burst and tumbleweeds rolled in, we never saw less than 10 venture-backed IPOs in any 12-month period,” Scott Austin writes.
So how did Rackspace, the San Antonio-based managed hosting provider, manage to buck the fierce market headwinds? “The answer is simple: Rackspace makes money,” Austin writes. :It posted 2007 revenue of $362 million, up 62% from the year before and better than nearly all companies in registration for IPOs. It has also been profitable for at least five years, a rarity among start-ups.”
There were occasions when hosting industry analysts felt Rackspace was taking a deliberate path to its long-expected public offering, but its focus on profitability turned out to be a differentiator in the 2008 IPO environment. Shares of RAX have been beaten up since the IPO, but no moreso than other companies in the sector. And in recent months insider buying has stepped up, suggesting confidence that shares are heading higher over the long term.
Well, “If you build it, they will come” has been the rack business for some years now. Since funding for the builds is tough to get and even if you get the funds and build the cave, engineering could have been faulty. There is a bunch of empty facilities, as they haven’t got adequate cooling. Thus, there is more demand than supply.