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Cloud Stocks Again Lagged Equity Benchmarks in 1H2014

Posted by Igor Stenmark
Igor Stenmark
Igor Stenmark is a Managing Director of MGI Research.
User is currently offline
on Wednesday, 09 July 2014
in MGI Quant

As was the case in 2013, during the 1H2014 equities of cloud companies have lagged broad market benchmarks. In 2013, the 2nd half of the year reversed the trend - cloud equities not only caught up but also outperformed the market finishing the year up over 32.22% vs. S&P 500 up 29.69%.

© 2014 MGI Research, LLC
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Cloud Stocks Pull Higher Away from Market Benchmarks

Posted by Igor Stenmark
Igor Stenmark
Igor Stenmark is a Managing Director of MGI Research.
User is currently offline
on Thursday, 19 September 2013
in Cloud Computing

After a long period of under performance in 2013, cloud equities caught up and surpassed major market performance benchmarks. The MGI Cloud 30 Index has been making and breaking new highs and the pull higher has now accelerated vis-a-vis the market overall.

© 2013 MGI Research, LLC
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The Cloud Trend is Intact - MGI Cloud 30 Index Reaches an All Time High

Posted by Igor Stenmark
Igor Stenmark
Igor Stenmark is a Managing Director of MGI Research.
User is currently offline
on Monday, 29 July 2013
in MGI Quant

The upward trend in cloud equities is intact. On Friday, July 26 2013, The MGI Cloud30(tm) Index reached an all-time-high of 247.02. But even with the latest surge in performance, the cloud stocks have markedly under performed the broad equity index benchmarks like S&P 500. The gap between MGI Cloud30 and S&P 500 has narrowed considerably from over 17% earlier this year to just over 3.5% as of Friday. While it is difficult to assess how many investors have followed this arbitrage situation, it is clear to us that the interest level is clearly rising.

© 2013 MGI Research, LLC
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Michael Crandell, CEO and Founder of RightScale Speaks at the 2013 MGI Research Cloud Innovators Summit

Posted by MGI Research
MGI Research
MGI Research Analyst Team
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on Wednesday, 12 June 2013
in Cloud Computing

Michael Crandell, CEO and Founder of RightScale Speaks at the 2013 MGI Research Cloud Innovators Summit about cloud management tools market, competitive landscape and positioning of RightScale within that market. Recorded on March 5th 2013 at the Core Club in New York, NY.

© 2013 MGI Research, LLC
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Rackspace Revenue Miss: An 800-to-1 Punishment

Posted by Igor Stenmark
Igor Stenmark
Igor Stenmark is a Managing Director of MGI Research.
User is currently offline
on Thursday, 14 February 2013
in Cloud Computing

A very modest miss of analyst revenue estimates has cost Rackspace (NYSE:RAX) dearly. The company quarterly results fell short of analyst estimates by $2.54 million, or less than 1% of its quarterly revenue target. The punishment that RAX endured as a result of this miss could only be described as brutal. From its pre-announcement level of around $75 per share Rackspace stock fell in two days of trading to just below $60 - a loss of over $2Billion in market value. For every dollar that Rackspace revenue missed the Street estimate, it has so far lost over $800 in market cap - an 800-to-1 punishment. As a reminder, Rackspace typically trades in a multiple range of 7X to 9X revenue. So what is behind the sell-off, is it an over-reaction and when will it stop?

RAX was clearly priced for perfection, - a momentum story and a trend stock that could only stay at its hefty levels if it not only met but consistently exceeded analyst estimates and raised guidance if available. At around $59 the shares are trading at an intermediate support level. If the shares make a break below $59, - more downside is possible. At the same time, we continue to see the momentum in cloud computing as strong and accelerating. The long term trend remains in place and is broadening outside the base of early adopters. Rackspace continues to be cited by IT buyers and competitors as one of the Top 3 suppliers of cloud computing infrastructure services. Its service levels are praised and pricing levels are often subjected to criticism - a sign that the company is able to maintain its margins against a perception (misguided in our view)  that there seems to be an onslaught of near infinite capacity of cheap computing power. One of the consistent inputs we hear from the field is that many customers use Amazon Web Services for development, but for production often chose Rackspace regardless of price.

Where we do see a challenge for Rackspace and other providers of cloud services, components and tools is that the very broadening of the appeal of cloud computing may actually create a temporary slow down in the sales momentum. The focus of the market is shifting away from early adopters to a much more mainstream set of buyers who take longer to buy, run longer trials and negotiate much harder on price and service levels. This transition is a process, not an event and will create a temporary damping effect in the cloud space. So far, during the recent earnings announcement season, we have seen a number of pure play and component suppliers in the cloud space stumble and see their stocks punished severely. VMware, Riverbed and CenturyLink are all examples of recently disappointing results.

In the near to mid-term Rackspace may see a moderation of its multiple. We do not see the company going the way of Blackberry but investor caution will be more pronounced as the company and some of its key competitors, suppliers and partners wade through this near term period of buyer transition.

Note: The preceding is not an offering or a recommendation to buy or sell securities of any kind. Rackspace, VMware, Riverbed and Centurylink are components of the MGI Cloud30 Index.

Recent Research:

2013 Cloud Innovators Summit: Core Club, NYC March 5th

Monetization as a Service - 20 Questions with MetraTech CEO Scott Swartz

Secure Cloud Opportunity - 20 Questions with CEO of Firehost - Chris Drake

Video Replay of the "Battle of PaaS Evangelists July 25 2012"

Is Security a Barrier to Cloud Adoption?

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