Rackspace Up for Sale; Multi-Cloud MSP Has $2B Market Cap
Rackspace Technology is “evaluating strategic alternatives and options” — which essentially means the multi-cloud MSP is once again up for sale and considering bids for some or all of its businesses. Moreover, Rackspace has received “inbound interest” for one of its businesses, though the potential suitor and technology focus were not disclosed.
The quoted area above, from CEO Kevin Jones, surfaced May 10, 2022 amid Rackspace’s first quarter 2022 financial results — which included:
- Overall revenue of $776 million, up 7 percent from Q1 of 2021.
- A net loss of $39 million, compared to net loss of $64 million in the first quarter of 2021.
- The quarterly results slightly beat Wall Street’s expectations.
During the associated Rackspace earnings call, Jones said the company will reorganize around two focus areas:
- public cloud, and
- private cloud and managed hosting.
Read between the lines, and the reorganization may allow Rackspace to sell off specific pieces of the business, or to fetch a higher price for the overall company.
Rackspace in recent years has diversified into multi-cloud MSP services for AWS, Microsoft Azure and Google Cloud. More recently, the company had made more formalized moves into managed security services. However, the resulting growth has not been fast enough to please investors. Among the low-points:
- July 2021: Rackspace announced a growth strategy but buried the real news about company layoffs.
- February 2022: Rackspace’s weak financial forecast trimmed 20% from the company’s stock.
The overall impact: Rackspace’s stock has fallen to about $8.63 — down from a 52-week high of $21.50 — as of May 10, 2022.
Rackspace CEO Statement
In a statement about the company’s latest financial performance and a potential company sale, Jones said:
“Rackspace Technology benefits from secular tailwinds in a cloud market that shows no signs of slowing. In the first quarter alone, our cloud hyperscaler partners added $10 billion of new cloud revenue. All of this new cloud revenue represents customers moving to the cloud, grappling with change, and needing help on their journey. And Rackspace Technology is extremely well-positioned to be their partner of choice as the only pure play cloud services company. Our first quarter financial results reflect this, as we delivered solid revenue growth and profitability as well as another quarter of strong cash flow from operations.
“Rackspace Technology recently completed an in-depth strategic review of our company. As we completed this strategic review, and also based on inbound interest for one of our businesses, we concluded that a sum of the parts valuation of Rackspace Technology could be greater than our current enterprise value. This is in part driven by the attractive growth profile of Public Cloud. Accordingly, we are evaluating strategic alternatives and options. We will provide further information as appropriate in light of developments.”
Rackspace: Multiple Pivots, Owners and IPOs
Rackspace has pivoted multiple times over its business history. Originally a hosting provider, Rackspace initially attempted to compete against Amazon Web Services (AWS), Microsoft Azure and Google Cloud Platform (GCP). But the CSP (cloud service provider) effort, linked to OpenStack software, paid few dividends and Rackspace ultimately shifted to a multi-cloud MSP strategy.
Apollo Global Management acquired Rackspace Hosting for $4.3 billion in 2016 and took the business private. Another Rackspace IPO arrived in 2020, but investors were underwhelmed. Fast forward to May 10, 2022, and Rackspace’s current market capitalization is about $2.07 billion.
Still, Rackspace is focused on a growth market: Spending in the cloud managed services market is expected to reach $139.4 billion by 2026, up from $86.1 billion in 2021. That’s a 10.1% compound annual growth rate (CAGR) during the forecast period, according to MarketsAndMarkets.
Blog published May 10, 2022. Updated thereafter with details about the company reorganization.