Rackspace Down in Debut

NEW YORK (Reuters) – Rackspace Hosting Inc (RAX.N: Quote, Profile, Research, Stock Buzz) shares fell by 12 percent in the web hosting company's market debut Friday, a day after its initial public offering priced at the lower end of the forecast range.

Rackspace competes with Equinix Inc (EQIX.O: Quote, Profile, Research, Stock Buzz), Switch and Data Facilities Co (SDXC.O: Quote, Profile, Research, Stock Buzz), and Internap (INAP.O: Quote, Profile, Research, Stock Buzz). Its shares traded at $10.92, down 12.6 percent, in mid morning trading on the New York Stock Exchange. The company's shares opened at $10, or 20 percent below the price set for the IPO.

Rackspace's IPO priced for $12.50 per share, at the lower end of the estimated range of $12 to $16 a share.

The San Antonio-based company sold 15 million shares and raised $187.5 million.

The web hosting business has weakened recently, said Renaissance Capital analyst Matt Therian, based in Greenwich, Connecticut. “There are continued worries about IT spending, especially for Rackspace that relies on small and medium sized companies,” he added.

The underwriters were led by Goldman Sachs & Co (GS.N: Quote, Profile, Research, Stock Buzz), Credit Suisse, and Merrill Lynch (MER.N: Quote, Profile, Research, Stock Buzz), which have the option to purchase an additional 1.9 million shares from the company, and 345,000 from existing stockholders.

Rackspace plans to use the proceeds of the IPO to finance its growth plans, which may include paying off debts or acquisitions, according to a regulatory filing. (Reporting by Phil Wahba; Editing by Derek Caney)