! SaaS Conference Highlights: The inaugural SaaS conference with ~140 attendees showcased how ~10% of Rackspace’s business leverages managed hosting and cloud services. We learned of two new offerings including a new service offering named “Critical Sites” targeted to mission-critical applications as well as an Application Marketplace (AppMatcher.com).
! Solid Business Momentum; EQIX Read-through Fundamentally Inaccurate, in Our View: Our work illustrates consistent Rackspace business momentum, giving us confidence in our 3Q revenues of $197m (Street at $198m). We see Equinix’s Colocation business and Rackspace’s managed hosting as two very different businesses (at two separate points in the value chain with different competitive environments and differentiation characteristics) and see no fundamental read from the ~1% organic guide-down EQIX’s stated for 3Q on its pre-announcement on Tuesday.
! More Value In Service With IaaS: We walk away more confident that Rackspace will be successful selling Managed Services atop its IaaS offering (to be released later this year). Customer conversations highlighted an even greater need for managed services in IaaS given the infancy of the technology and natural complexities in leveraging Cloud solutions.
! Raising Estimates and Price Target to $27; Maintain Outperform: We are increasing 2011/2012 numbers to $0.78/$1.03 from $0.77/$0.99 given increased confidence in growth and are raising our price target to $27 from $22.