Cloud Hosting

Rackspace Technology, like the rest of us, has had quite a year.

Apollo Global Management, the behemoth investment firm that took Rackspace private in a $4.3 billion deal in 2016, returned the San Antonio cloud computing company to the stock market 12 months ago.

Since then, Rackspace has cut its workforce and shifted its strategy within the fast-moving cloud computing business. Its stock price has gyrated along the way.

As investors have run hot and cold on the company over the past year, Rackspace has produced strong revenue growth and is expected to generate about $3 billion in revenue this year. That would mark two consecutive years of double digit growth since 2019, when the company posted revenue of $2.4 billion.

We really feel good about the revenue growth sustainability, Rackspace CFO Amar Maletira said during the firms first-quarter earnings call in May. We can continuously drive double-digit growth into 2021 and beyond.

On ExpressNews.com: San Antonio-based Rackspace cuts 10 percent of workforce

1998: Rackspace founded

2008: Goes public at $12.50 per share, raising $187.5 million.

2013: Shares climb to about $80.

Feb. 2016: Shares fall as low as $17 amid competition from larger-scale cloud-computing services.

Nov. 2016: Acquired by Apollo Global Management Inc. for $32 a share, taken private in deal valued at $4.3 billion.

April 2020: Apollo registers Rackspace for an IPO that could value it at more than $10 billion.

June 2020: Saying it more accurately reflects new focus, changes name to Rackspace Technology Inc.

July, 10, 2020: Registration statement for IPO shows debt of nearly $4 billion, up from $493 million in last filing as public company in 2016.

July 27, 2020: New filing shows it expects to raise nearly $925 million in IPO.

Aug. 5, 2020: Shares debut at $21 and fall nearly 22 percent to close at $16.39 after first day of trading. Selling 33.5 million shares, IPO raises $703.5 million.

Aug. 31, 2020: In first earnings report since IPO, reports loss of $33 million on $657 million revenue in second quarter. Shares close at $19.33.

Nov. 10, 2020: Reports loss of $101 million on $682 million in revenue in third quarter. Shares close at $17.60.

Jan. 26: Taking advantage of low interest rates, refinances nearly $2.9 billion in debt "to repay all borrowings outstanding."

Feb. 19: Reports loss of $64 million on $716 million revenue in fourth quarter. Shares close at $20.93.

March 19: Regulatory filing touches off speculation company could be an acquisition target. Shares close at $24.13.

May 10: Reports loss of $64 million on revenue of $726 million in first quarter. Shares close at $24.02.

May 11: In response to company's forecast for slower growth, shares crater to $19.01.

July 22: Lays off 700 employees, about 10 percent of global workforce, in restructuring.

Thursday: Shares close at 17.13.

Despite its increasing revenue, Rackspace lost $246 million in 2020 and, through the first three months of this year, reported a $64 million loss. The company is projecting to lose between $30 million and $50 million in the second quarter of this year.

Launched here in 1998, Rackspace grew fast in its early years, exciting struggling and often overlooked entrepreneurs in San Antonio and drove city and business leaders appetite for a more muscular technology industry locally.

As demand for cloud services has ratcheted up, Rackspace acquired four companies including Onica, a cloud services and management firm, and Datapipe, a managed services provider for private and public cloud customers for a total of $1.7 billion in cash and stock since 2017.

Rackspace opened its Open Cloud Academy in 2013 to train tech workers; CodeUp acquired the academy in April for an undisclosed amount. And as they left Rackspace over the years, founders and senior executives began advising local startups and establishing investment funds.

But in its hunt to reach profitability, Rackspace has reshaped its business over the past half-decade. The company used to host websites for companies, and eventually found itself in competition with Amazon, Google and Microsoft.

And if you cant beat em, join em.

More recently, Rackspace has focused on providing cloud services, where it helps companies move their data onto the cloud, which means remote data storage.

And firms are increasingly going to a multicloud strategy where they use more than one cloud service. Think of working with Amazon Web Services and Google Cloud at the same time, for example.

Pursuing a mulitcloud strategy allows a company to use the best functions of each cloud service, such as data transfer or automation functions. And using different cloud services buffers a company from the risk of one service failing.

But using multicloud services can be complex, and firms hire Rackspace to help them make the transition.

The market for multicloud services is expected to reach $520 billion by 2024, a roughly $200 billion increase, according to Gartner, an information technology firm.

While Rackspace shifts its business internally, it has shed employees.

Last month, the company laid off 700 workers about 10 percent of its global workforce. Rackspace said it is investing in growth areas like cloud migration, Elastic Engineering, professional services, cloud native application development, Data, Artificial Intelligence, Machine Learning and Security services.

We are restructuring the company to fuel the investment, and to position our business for these hyper-growth areas, a spokeswoman said.

In 2019, Rackspace cut 200 jobs and moved another 125 to India. In 2017, it cut fewer than 100 positions and issued another 275 pink slips the following year.

On ExpressNews.com: Starbase surge, more Houston St. chatter and other spare parts from the Texas tech scene

Analysts have largely given Rackspace a pass for its heavy losses in recent years because the company has been investing in its own growth. Ten Wall Street analysts covering Rackspace still recommend investors buy the stock.

But its unclear when investors appetite for profit will exceed their hunger for potential growth in the future.

In mid-March, a document Rackspace filed with the Securities and Exchange Commission outlined compensation plans for its top executives in the event of an ownership change. It appeared to suggest the company may be acquired by a rival such as Amazon.

The news sent the stock price to a record high, when it topped $26 per share in early April.

But when Rackspace reported second-quarter earnings in May, the companys share price plummeted even though it exceeded expectations for the quarter.

The stock price cratered, falling by 21 percent in a single day, largely because the companys targets for the second quarter and full year suggested Rackspaces earnings wouldnt grow as quickly as analysts wanted.

Despite calling for second-quarter revenues above analyst targets, the companys forecast of slower earnings growth was enough to shake Wall Street.

The stock price recovered some after Rackspaces first-quarter presentation, but it has struggled to rise since. The companys shares have fallen nearly 14 percent over the last month. They traded just above $17 on Thursday.

Rackspace will report second-quarter results on Wednesday.

diego.mendoza-moyers@express-news.net

Read the original here:
Dizzying year sees Rackspace IPO, a dramatic restructuring and a mass layoff. Will the company live up to expectations in 22? - San Antonio...