Rackspace racks up another loss as restructuring plans take shape

Rackspace racks up another loss as restructuring plans take shape

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Troubled cloud services provider Rackspace Technology Inc. appears to have carved out a little breathing space after delivering third quarter financial results that beat expectations today.

The company reported earnings before costs such as stock compensation of 10 cents per share, edging past Wall Street’s target of 9 cents per share. Revenue for the period came to $787.6 million, up just 3% from a year ago but ahead of the consensus estimate of $773.4 million.

Unfortunately for Rackspace, that meager growth was not enough to make much of a dent in its bottom line, as it ended the quarter with a $511.7 million loss.

Rackspace’s situation is a far cry from its former glory days. In the early 2010s it was a member of esteemed company, competing with the likes of Amazon Web Services Inc., Microsoft Corp. and Google Cloud in the public cloud infrastructure market. For a while Rackspace was able to hold its own, but ultimately a lack of funding forced it to pivot from owning servers and hardware to operating them – with that, Rackspace instead began to provide managed services for the cloud, helping enterprises to design, build and operate cloud environments on its former rival’s platforms.

The demand for cloud services is there, but Rackspace has been unable to translate that into business success. In recent years it has been plagued by a pedestrian level of growth and its shareholders aren’t happy. Under pressure, the company announced earlier this year it was conducting a strategic revenue and looking at possible buyers to take it private.

No sale has materialized thus far, but there was movement behind the scenes last month as Rackspace suddenly announced that its chief executive officer Kevin Jones was stepping down, effective immediately. He was promptly replaced by Amar Maletira (pictured), the company’s president and chief financial officer since late 2020. There was no word on what changes Maletira might introduce.

In a statement following today’s earnings report, Maletira pointed out that the company delivered revenue and earnings above its own guidance. “We continue to make good progress on the realignment of our two business unit model and remain on track to begin operating and reporting in this new structure beginning January 2023,” Maletira said.

Maletira continued: “We know the road ahead will be challenging and the macro environment remains uncertain. But the long-term market opportunity for Rackspace Technology in public and private cloud remains promising. Our focus in 2023 is on positioning Rackspace to capture that potential.”

The new CEO might be optimistic, but he faces a tough task in trying to turn around Rackspace’s core business offering, which is comprised of “multicloud services” and “apps and cross-platform” sales. Revenue from these two segments rose by just 5% to $751.2 million in the quarter. Maletira will need to find a way to accelerate this growth quickly, because Rackspace’s other business is slowly withering away on the vine. Its OpenStack Public Cloud segment reported sales of just $36.4 million, down 18% from a year earlier.

Looking to the fourth quarter, Rackspace said it sees earnings of between 4 cents and 6 cents per share, slightly below Wall Street’s forecast of 7 cents. Revenue is expected to fall within a range of $772 million to $782 million, the midpoint of which is below Wall Street’s target of $781.2 million.

Although the guidance was not exactly reassuring, investors finally cut Rackspace some slack, with its shares rising more than 4% in extended trading, having lost more than 10% earlier in the day.

Photo: Rackspace

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