Rackspace Technology CEO Kevin Jones has set off speculation that San Antonio’s flagship technology company may be for sale again.
In a call with analysts Tuesday, Jones said that after a thorough review of the cloud computing company, and “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. … We are evaluating strategic alternatives and options.”
He said the company’s value was driven in part by the “attractive growth profile of our public cloud offerings,” referring to Rackspace’s services that help mid-sized firms migrate to and manage services on platforms such as Amazon Web Services, Microsoft Azure and Google Cloud.
Asked by the San Antonio Report for additional information, a spokeswoman for Rackspace pointed to a press statement that largely repeated Jones’ quote. Rackspace later sent a follow-up statement that appeared to downplay the speculation that the company was selling itself or going private.
“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 statement read in part.
If Rackspace were to be bought, it wouldn’t be the first time. Rackspace sold itself in 2016 for $4.3 billion to Apollo Global Management, which took the company private before reentering the public market in 2020. The private equity firm continues to own 65.1% of Rackspace’s stock.
Rackspace employs between 6,000 and 7,000 worldwide, with a sizable portion at its headquarters in Windcrest.
Holger Mueller, principal analyst at Silicon Valley-based Constellation Research, said he interpreted Jones’ remarks as a “sell signal” and that the company would likely sell the on-premise servers and cloud services parts of the business separately. He said although the company was becoming more profitable, he felt the on-premise server side has been held too long, and growth in its cloud service side has underperformed the market.
Asked Tuesday about buyer interest, Jones said details could not be provided “due to the ongoing nature of our conversations, both internally and externally.”
Rumors of an intention to sell have repeatedly surfaced since Rackspace became a public company for the second time in 2020.
Shortly after Rackspace’s NASDAQ debut, Reuters cited unnamed sources in a report that said Amazon Web Services was seeking a stake in the company. No such purchase materialized.
Then last year, the company filed a report with the U.S. Securities and Exchange Commission that outlined severance benefits for executives like Jones in the event that Rackspace is bought out.
After it took Rackspace private, Apollo accelerated the company’s transformation from a competitor of Amazon and Microsoft’s clouds into an ally. Rackspace, founded in 1998, originally sold web hosting from its on-premise servers, stored on racks (hence the name). It still does some of that, especially for small business. In the early 2010’s, Rackspace entered the cloud business but couldn’t compete as Silicon Valley giants squeezed that market. Rackspace pivoted to offering a white-glove service that helped mid-sized businesses use those giants’ clouds.
On Tuesday’s call, Jones said Rackspace is considering a reorganization that would formally separate the two “very different” parts of the company.
Doing so would “unlock value,” wrote Tien-tsin Huang, an analyst with J.P. Morgan, in his report on Rackspace’s first-quarter earnings. Split efficiently, the white-glove service as a business would have high growth, low capital costs and low margins, he wrote. The legacy hosting service as a separate business would have low growth, high capital costs and high margins.
Jones said more details on Rackspace’s strategy would be shared in September.
For the first quarter, Rackspace reported a net loss of $39 million on revenue of $774.5 million, marking the 10th consecutive quarter its revenue had grown.
Rackspace’s stock closed at $8.17 on Wednesday, having fallen steadily since its high of $26.43 in April last year.
This article has been updated with an additional statement from Rackspace.