Wednesday, December 16, 2009

Hosting & Cloud Computing: Numbers Don't Lie

There's lots of chatter in the market today regarding the value of using outside data centers, hosting services and cloud computing.  But listening to pundits/analysts trying to objectively predict true value left me hollow.

While I'm not an investment professional, I do know that the stock market doesn't lie.... so instead, I thought I'd look at a bundle of stocks from publicly-traded data center companies in the data center space, and compare against a market benchmark.

I chose companies on publicly-traded markets in both the US as well as in Europe. My criteria were somewhat subjective, but basically the companies had to have a primary business operating data centers. I also excluded Telcos because it is difficult to separate their carrier revenues relative to hosting revenues. So, my initial "virtual fund" consists of 12 companies: Digital Realty Trust; DuPont Fabros; Equinix; Internap; Iomart; Macquarie Telecom; Navisite; Rackspace; Savvis; Switch & Data; Telecity; Terremark.


I also took a 5-company subset of these public companies that had significant offerings in the cloud computing space (Equinix; Navisite; Rackspace; Savvis; Terremark). I labeled this "virtual fund" a cloud-only index.

The chart at right is my best attempt to (a) tabulate historic end-of-month closing price of each stock; (b) calculate month-to-month percentage gains for each; (c) create "virtual funds" where $100 would be invested equally across each vehicle (initially $8.33 in each of the 12 hosting stocks, and initially $20 in each of the 5 cloud-related stocks). The benchmark I used is the Nasdaq index, also assuming an initial $100 investment.

Not surprisingly (for me, anyway) both "indexes" are outperforming the Nasdaq -- perhaps proving the thesis that datacenter operation and application outsourcing is indeed a growth market (or at least a speculative growth market?) as compared to the general technology market. What would be equally useful (but not an analysis I've done) is to chart gross revenues for the Index companies. This would be a telling barometer of actual business.

I'll continue to update this index at the end of each month. Comments, additions and suggestions welcome!

3 comments:

Michael said...

Great post and idea. I'd be curious to see the historical data as far back as these companies could go.

Ken Oestreich said...

Good idea; I chose the current date range (starting Sept '08) b/c that's when Rackspace went public. But I can modify the range and go back another year or so. Thanks.

Derek Kerton, The Kerton Group said...

"I do know that the stock market doesn't lie"

Really? Not sure I agree.

If not "lie", would you accept that it, occasionally, misrepresents values?