Merriman Curhan Ford Initiates Coverage on NaviSite, Inc (NAVI), Rackspace Hosting, Inc (RAX), SAVVIS, Inc. (SVVS) and Terremark Worldwide, Inc. (TMRK)

Jan 26, 2010, 12:08 ET from Merriman Curhan Ford

SAN FRANCISCO, Jan. 26 /PRNewswire-FirstCall/ -- Merriman Curhan Ford (Nasdaq: MERR) today announced that it has initiated coverage on the Cloud Computing space with reports on Rackspace Hosting, Inc. (NYSE: RAX) and Terremark Worldwide, Inc. (Nasdaq: TMRK) with Buy Ratings, and NaviSite, Inc. (Nasdaq: NAVI) and SAVVIS, Inc. (Nasdaq: SVVS) with Neutral Ratings under equity research analyst Alex Kurtz.  

"We believe Cloud Computing represents a fundamental shift with regards to how IT organizations manage and source data center computing resources.  Companies such as Terremark, Rackspace, SAVVIS and NaviSite are at the forefront of this development," said Alex Kurtz, senior vice president and technology equity research analyst of Merriman Curhan Ford.  "Our core differentiator in covering this space is leveraging our expertise within our existing coverage of IT systems vendors, who are competing for the same IT budget dollar and impacted by the same macro trends as a Terremark or a Rackspace."


Kurtz highlighted these themes in his company initiation reports:

  • Rackspace Hosting, Inc (NYSE: RAX; $20.47; Buy)
    • We are initiating coverage of Rackspace with a Buy Rating. We believe Rackspace is well positioned for topline growth in 2010 as the company benefits from a broader return to IT spending that is backed by its strong TCO arguments for both its Managed Hosting and Cloud Hosting businesses as IT organizations look for ways to rationalize cost out of their data centers. The upside potential for this year could certainly be the company's increased focus on the Enterprise vertical that, on average, spends 10x that of the SMB customer segment. We believe this strategic focus and a Cloud business that is aligned well against the early adopters in the market along with improving installed base metrics suggest a solid outlook. We believe upside exists in the $24-27 range.
  • Terremark Worldwide, Inc. (NASDAQ: TMRK; $8.25; Buy)
    • We are initiating coverage of Terremark with a Buy rating. We believe Terremark is uniquely positioned in the data center market to benefit from several key trends: 1) continuing demand for co-location space, as additional Terremark capacity coming online in 4Q10 and 1Q11 that should bolster this revenue segment, which carries flow through margins higher than the other business segments;  2) a strong set of Go To Market partners that include VMware, CSC, Tata and others that should help Terremark penetrate the Fortune 1000 with its Cloud offerings; 3) a Managed Hosting business that should over time act as a feeder for its Cloud offerings; and 4) a two year head start on the Federal market that drives 20% of revenues. We view fair value in the $10-12 range or 10x-12x EV/CY10 EBITDA.
  • NaviSite, Inc (NASDAQ: NAVI; $2.60; Neutral)
    • We are initiating coverage of NaviSite with a Neutral Rating. NaviSite is attempting to sell the leases and associated revenues of its Co-location business among six of its 16 datacenters. Given the immense opportunity that Cloud Computing services represent ($44B by 2012, per IDC), we believe these coordinated sales, which could yield $30-40M in cash, should enable management to refine its Go-To-Market strategy. Our discussions with NaviSite's management and technical team suggest the company has put considerable effort behind its Cloud design with a focus on application management which could drive cross-selling opportunities from their managed hosting customers. We will reconsider our rating once greater clarity is provided for these transactions and the related impact on the revenue profile.
  • SAVVIS, Inc. (NASDAQ: SVVS $16.01; Neutral)
    • We are initiating coverage of SAVVIS with a Neutral rating. We view the SAVVIS story as one of transition, as the Board looks to new leadership that will help drive its Managed Hosting and Cloud businesses over the next few years and attempt at becoming a more strategic partner to corporate IT organizations. While valuation appears attractive at 5.8x EV/CY10E EBITDA, the lack of topline Y/Y growth (we're at 2.6% for CY10) and a potential two quarter search for a new CEO keeps us on the sidelines.  

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Specific Disclosures

  • MCF & Co. has not received compensation for investment banking services within the last 12 months, and does not expect to receive or intend to seek compensation for investment banking services in the next three months, from SAVVIS Inc., Terremark Worldwide Inc., NaviSite Inc., or Rackspace Hosting, Inc.
  • Within the last 12 months MCF & Co. has not managed or co-managed a public offering for SAVVIS Inc., Terremark Worldwide Inc., NaviSite Inc., or Rackspace Hosting, Inc.
  • MCF & Co. makes a market in SVVS, TMRK, and NAVI and as such buys and sells from customers on a principal basis. MCF & Co. does not make a market in RAX.
  • Neither Alex Kurtz nor a member of his household owns shares of SVVS, TMRK or RAX.
  • Neither MCF & Co. nor its officers, principals, employees, or owners own options, rights, or warrants to purchase SVVS, TMRK, NAVI, or RAX.
  • No MCF & Co. employee serves on the board of directors of SAVVIS Inc., Terremark Worldwide Inc., NaviSite Inc., or Rackspace Hosting, Inc.
  • Neither Alex Kurtz nor a member of his household serves on the board of directors of SAVVIS Inc., Terremark Worldwide Inc., NaviSite Inc., or Rackspace Hosting, Inc.
  • Neither MCF & Co. nor its affiliates beneficially owns 1% or more of an equity security of SAVVIS Inc., Terremark Worldwide Inc., NaviSite Inc., or Rackspace Hosting, Inc.

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