Rackspace Faces Potential Reorganization, Sale: ‘Everything Is On The Table’

‘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,’ says Rackspace CEO Kevin Jones on the company’s earnings call.

Rackspace Technology is considering selling part of its business and has already been eyed by a potential buyer.

Rackspace CEO Kevin Jones said during the San Antonio, Texas-based solution provider’s first-quarter earnings call this week that “everything is on the table” after a strategic review of the business.

“Rackspace Technology recently completed an in-depth strategic review of our company,” Jones said during the earnings call. “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.”

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Jones wouldn’t give details on the potential buyer but said it plans to share its new company strategy and financial plans at its Analyst Day in September.

“I can assure you in terms of strategic alternatives, everything is on the table,” he said. “We’re evaluating all options, including this current inbound interest for one of our businesses and we’ll provide further information as appropriate in light of developments.”

He said with all the momentum in the cloud market, its cloud hyperscaler partners grew cloud revenue by $10 billion, which shows that customers need more assistance on their cloud journey.

“Public cloud is right in a long-term secular growth wave and is a services-centric capital-light product line where we can make smart investments to capture additional whitespace and growth opportunities,” he said.

In an email to CRN, a Rackspace spokeswoman said that “[w]e are the only pure play multicloud service company to address both the public and private cloud markets at scale. We recently conducted an internal strategic review to identify opportunities for innovation and improvement to our products and services. After completing this review, we are considering an internal reorganization to align our investments for both the public and private cloud markets.”

The news of Rackspace’s realignment comes about two years after the company rebranded itself Rackspace Technology and refocused itself as a multi-cloud solution provider.

Rackspace this week reported $776 million in revenue for the first quarter for fiscal year 2022, a 7 percent increase compared with the first quarter of 2021. Income from operations was $21 million in the first quarter, compared with income from operations of $24 million in the first quarter of 2021.

Rackspace stock was at $8.79 per share Thursday afternoon, down about 36 percent from where it stood at the start of the year.