UPDATED 19:15 EDT / MAY 10 2021

CLOUD

Rackspace’s stock plunges despite record revenue and a growing customer base

Cloud computing services company Rackspace Technology Inc. saw its stock fell sharply in after-hours trading despite posting strong first-quarter financial results that beat Wall Street’s expectations.

The company reported record revenue as it grew its client base and existing customers spent more.

For the first quarter, Rackspace reported a profit before certain costs such as stock compensation of 23 cents per share on revenue of $726 million, up 11% from a year ago. Wall Street had forecast earnings of 21 cents per share on slightly lower revenue of $724.08 million.

However, the company’s net loss grew to $64 million, up from a net loss of $48 million in the same quarter last year. That may have been what sent Rackspace’s stock tumbling in the after-hours session, losing more than 14% of its value.

Rackspace helps design, build and operate cloud computing environments for enterprise customers across major technology platforms, including Amazon Web Services, Microsoft Azure and Google Cloud.

The firm was actually an early rival to those companies in the cloud infrastructure market. But a comparative lack of funding left it unable to compete with those players in the long term, prompting Rackspace to shift its focus onto managing cloud services for customers instead.

Rackspace Chief Executive Kevin Jones (pictured) said the company had gotten off to a “strong start” to 2021 and that its business model and cost transformation programs were driving big improvements in its year-over-year profitability.

“Most importantly we are continuing to position the company for consistent ongoing growth and earnings leverage,” Jones said. “The new customers we landed in 2019 and 2020 provide a strong growth foundation, and the continued tectonic shift of workloads to the cloud will provide secular tailwinds for years to come.”

Revenue from Rackspace’s Core Segments business, which is comprised of Multicloud Services, Apps & Cross Platform and OpenStack Public Cloud, rose 15% year-over-year, the company said. Within that segment, Multicloud revenue rose 14%, to $579.6 million, Apps & Platform revenue rose 13%, to $97.3 million, and OpenStack services fell 7%, to $49 million.

The company also said its sales bookings rose 6% from a year ago, to $244 million.

Analyst Holger Mueller of Constellation Research Inc. told SiliconANGLE that Rackspace delivered a good quarter on the revenue side, with growth of 11%. That, he said, underscored the resiliency of the cloud services it delivers and also the strong demand for cloud computing in general. But he said it was not immediately clear why the company became less profitable this quarter.

“The vendor didn’t do quite so well on the cost side as it lost more on more revenue, and that never looks good,” Mueller said. “So cost management in the quarters to come will be key, as will its continued innovation, because no space moves as fast as the cloud market and with that the cloud services market.”

For the next quarter, Rackspace is expecting a profit of 21 to 23 cents per share on revenue of $735 million to $745 million. Wall Street is looking for profit of 23 cents per share on revenue of $735.04 million.

Photo: Rackspace

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