Needham & Company Implies Amazon's AWS Success Makes Rackspace (RAX) Into an Expensive Services Vendor

Richard Kugele, Needham & Company cloud research analyst published a note in the wake of Amazon's (NASDAQ: AMZN) blowout quarterly results highlighting the competitive implications for major vendors. While many vendors are affected, the one that stands out is the pure play cloud services company, Rackspace (NYSE: RAX). Rackspace shares are trading at PE of 30 which is more indicative of a high growth technology company than a services company, yet that is what Kugele implies the company's long term role in web services will be.

Kugele believes that the increasing capability of AWS into the traditional domain of enterprise hardware and software infrastructure players has weighed on some spending, but also spurred customers to move to adopt hybrid cloud deployments.

Competitive clouds from players such as MSFT and GOOG, despite the size of the business or corporate installed base, are increasingly being left behind by AWS.

What does this mean for RAX? It seems to have long ago discarded any hope of competing head to head with AMZN and instead are trying to focus on being a professional-services-heavy alternative. It is directly partnering with AWS and it is too early to determine how successful that will be.

For the moment, AWS is a force of nature and an extremely profitable element of AMZN.

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