UPDATED 00:39 EDT / AUGUST 09 2016

NEWS

Rackspace offloads Cloud Sites web hosting business

Rackspace Inc. caused a bit of disappointment at its earnings call yesterday when it refused to confirm or deny rumors it might be selling itself to a private equity investor. But it did offload a chunk of its business yesterday, announcing the sale of its Cloud Sites business to web hosting services provider Liquid Web Inc.

Cloud Sites is a developer-centric web hosting service that starts at $150 a month, and Rackspace has decided it’s no longer central to its strategy, which is now focused on managed cloud services.

“As Rackspace continues to focus on delivering expertise and Fanatical Support for the world’s leading clouds, while serving more enterprise customers, it has been divesting services that are not core to this strategy,” the company announced in its quarterly earnings statement.

Taylor Rhodes, CEO of Rackspace, described Cloud Sites as “a good business”, but said it’s “non-core” and therefore no longer a big focus of the company’s overall strategy.

For Liquid Web, the deal seems like a good one that will allow it to expand itself through acquisition. The two firms actually have a lot in common, as both market themselves around dedicated customer support, something that Liquid Web believes differentiates itself from similar companies.

“Unfortunately, our industry is trending toward unsupported services, which leaves fast-growing developers, digital agencies and designers alone, without a real person to turn to when they really need help,” Liquid Web CEO Jim Geiger said in a statement.

With Cloud Sites under its belt, Liquid Web now supports popular hosting platforms like Drupal, Joomla, .NET, PHP, WordPress and others.

Rackspace said the deal was agreed last July, and should conclude by September 30. The unit will remain in Rackspace’s San Antonio headquarters, Liquid Web added in a statement. It also reassured Cloud Sites customers of a smooth transition to the new owners.

Prior to the announcement, Rackspace refused to confirm or deny last week’s bigger story that it might be about to take itself private.

“We can’t comment on speculation or rumors,” was all Rhodes would say on rumors of a $3.5 billion private equity buyout.

Rackspace also disappointed investors yesterday with somewhat tepid second quarter earnings. The company reported a second-quarter profit of 28 cents a share, or 38 cents before certain costs such as stock compensation. That beat analysts’ expectations of 21 cents a share. Sales rose 7 percent, to $524 million.

However, shifts in currency rates and the first-quarter sale of its Jungle Disk file hosting business hurt growth, and the company responded by issuing an outlook for slower growth for the rest of the year. As a result, Rackspace’s shares fell about 1.8 percent in after-hours trading.

It isn’t clear how much revenue Rackspace derives from Cloud Sites, but the sale is likely to have an impact in the short term as the continues to reorganize itself.

Photo Credit: Thomas Hawk via Compfight cc

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