Rackspace plans to sell part of its business • The Register
Rackspace Technology is considering selling at least part of its business following a strategic review, with CEO Kevin Jones admitting “everything is on the table”.
The company revealed that it had already received interest from a potential buyer.
The move was announced during a conference call covering Rackspace’s first quarter 2022 results, during which Jones asserted that Rackspace was well positioned as a pure play multi-cloud services company.
He believes that it is benefiting from the wave of growth enjoyed by the cloud hyperscalers whose services it resells. The public infrastructure cloud market, for example, is growing by around a third every quarter and remains dominated by AWS, Microsoft and Google.
However, Jones also noted that Rackspace’s business has transformed over the past few years such that it now operates in two very different multi-cloud markets with very different operating models, growth trajectories and different investment perspectives.
“Public cloud is in the middle of a long-term secular growth wave and is a service-centric, low-cap product line where we can make smart investments to capture additional white space and growth opportunities. on the other hand, private cloud and managed hosting is in a low growth market where we are focused on maximizing profit and free cash flow,” Jones explained.
As a result, Rackspace is now considering reorganizing the business around these two markets, as well as exploring other strategic alternatives, he added.
CFO Amar Maletira said the cloud market has evolved rapidly over the past 18 to 24 months, and so Rackspace is evaluating all of its options to exploit the opportunity it says exists there. He revealed that the company had already received interest from a potential buyer for part of its business, but would not say which one.
“As we complete this strategic review, and based on the interest generated by one of our businesses, we have concluded that the sum of the Rackspace Technology parts valuation may be greater than our enterprise value. current situation,” he said, adding, “This is in part thanks to the attractive growth profile of our public cloud offerings. Accordingly, we are evaluating alternatives and strategic options.”
This would seem to imply that Rackspace is happy with the part of its business that offers services around public clouds, but not so happy with the private cloud and managed hosting side.
Rackspace was asked which part of the company the “incoming interests” referred to during its earnings call, but Jones did not provide specific details. Rackspace plans to share its new strategy, operational organization and long-term financial model at an Analyst Day to be held in September.
“But, I can assure you that in terms of strategic alternatives, everything is on the table. And we are evaluating all options, including this current incoming interest in one of our businesses and we will provide further information on appropriate in light of developments. ,” he said.
Rackspace reported first-quarter 2022 revenue of $776 million, a 7% year-over-year increase, down from the 11% reported for 2021.
Revenue from Rackspace’s Multicloud Services and Apps & Cross Platform segments increased 9%, while operating revenue fell to $21 million from $24 million in the first quarter of 2021.
Rackspace has been in private hands before, initially going public on the New York Stock Exchange in 2008, before being acquired by private equity player Apollo Global Management in 2016. The company had a second IPO in 2020 which valued it at $4.2 billion. , less than the $4.3 billion Apollo Global had paid for it.
Last year, Rackspace laid off about 10% of its workforce. ®