Rackspace Busts IPO Move

Storage and server hosting specialist Rackspace completed its IPO today, although tough economic conditions resulted in a lackluster first days trading.

Last night the vendor priced 15 million shares at $12.50 per share, some 12.7 million of which were offered by Rackspace, and the remainder from selling shareholders.

Trading under the ticker symbol ‘RAX’ on the New York Stock Exchange (NYSE), the shares opened at $10 this morning, closing just one cent higher tonight.

“It should have been priced lower or the deal should have been postponed until the economy improved,” says Scott Sweet, senior managing partner of analyst firm IPOBoutique, explaining that today’s offering did not do Rackspace justice. “The company reads very well and it has a very fast growing and very profitable story.”

Rackspace, for example, is one of a number of companies touting cloud storage services to users in addition to its other hosting products. Documents filed with the SEC today list Microsoft, Yahoo, Amazon, and Facebook as Rackspace’s top customers.For the first six months of 2008, Rackspace’s revenues were just under $144 million, although this was slightly down on the same period last year, when the vendor brought in just over $154 million.

Rackspace and the selling shareholders have granted the IPO’s underwriters a 30-day option to purchase up to an additional 2,250,000 shares to cover over-allotments.

Goldman Sachs, Credit Suisse, and Merrill Lynch are acting as joint book-running managers for today’s offering. The IPO’s co-managers include W.R. Hambrecht, Jeffries & Company, and RBC Capital Markets.

Since the meteoric VMware debut on the NYSE last summer and 3PAR's public offering in the fall, storage-related IPOs have been thin on the ground.

Only three vendors, Nexsan, BlueArc, and GlassHouse Technologies are even on the IPO path, although Sweet feels that caution is needed.“I would hold any deal right now; there’s just no money available for IPO speculation,” said Sweet. “Obviously, the market is exceptionally volatile. Today, for example, people are buying cheap trading stocks, not Rackspace, that’s for sure.”

Recent reports from both VCs and analysts have painted a less than rosy picture of the overall investment landscape. In a recently released survey of 201 venture capitalists undertaken jointly by KPMG and VC networking site AlwaysOn, almost three quarters of respondents said that the U.S. is in a recession, predicting that the unstable economy will take its toll on funding activity in the coming year.Have a comment on this story? Please click "Discuss" below. If you'd like to contact Byte and Switch's editors directly, send us a message.