UPDATED 20:08 EST / AUGUST 11 2021

CLOUD

Weak outlook sends Rackspace stock down in extended trading

Cloud computing services provider Rackspace Technology Inc. took an after-hours beating today after posting a weak outlook, despite besting expectations with its second-quarter financial results.

The company reported a profit before certain costs such as stock compensation of 24 cents per share on revenue of $744 million, up 13% from a year ago. Wall Street had the company down for earnings of 22 cents per share on $740.6 million in sales.

Rackspace’s net operating loss for the period was $37 million, which compared to a $33 million net loss one year ago.

Rackspace Chief Executives Kevin Jones (pictured) said in a statement the company also delivered strong operating profit margins. “In addition, our working capital and cash management transformation programs have driven excellent results with more than $100 million of operating cash flow for the second consecutive quarter,” he noted.

Rackspace helps enterprises design, build and operate cloud computing environments 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 them in the long term, prompting Rackspace to shift its focus onto managing cloud services for customers instead.

The company said its revenue growth during the quarter was driven by a combination of new customer acquisitions and growing customer spend in its core Multicloud Services and Apps & Cross Platform business units. Those two segments accounted for $698 million of its revenue, up 17% from a year ago.

On the downside, Rackspace reported second-quarter bookings of $258 million, down 10% from the year-ago period. However, it pointed out that its second-quarter 2020 bookings included one large deal valued at $38 million. Without that deal from the comparative period, its bookings rose 3%, it said.

All in all, it was a solid if unspectacular quarter, but the good work was undone by the firm’s disappointing guidance for the next three months. Rackspace said it’s looking at third-quarter earnings of 23 to 25 cents per share on revenue of $750 million to $760 million.

That left a lot of people disappointed, as Wall Street had earlier called for earnings of 22 cents per share on higher revenue of $761.2 million.

Investors balked, and Rackspace’s stock dropped more than 7% in extended trading.

Analyst Holger Mueller of Constellation Research Inc. told SiliconANGLE Rackspace grew because multicloud continues to help enterprises’s strategies, and the company can assist them on that path. However, he said investors are clearly looking for Rackspace’s leaders to show a path to profitability. “The key is for Rackspace to remain relevant to customers that already trust them in an accelerating cloud world,” Mueller said.

Photo: Rackspace

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