Shares of Rackspace move higher on strong bookings growth and bullish outlook

Cloud services provider Rackspace Technology Inc. continued to make slow and steady progress on its long road to recovery, delivering a lower-than-expected loss and guidance for the current quarter that came in above Wall Street’s expectations.

The company reported a third-quarter loss before certain costs such as stock compensation of four cents per share, better than the anticipated loss of seven cents per share. As for revenue, that came in more or less in-line with the Street’s forecast. The company reported total sales of $675.8 million in the quarter, down 8% from a year earlier but just ahead of the $675.1 million estimate.

All told, Rackspace posted a net loss of $186.6 million in the quarter. That suggests the company is improving, as it improves on the net loss of $227 million reported one year earlier.

Investors clearly liked what they saw, as Rackspace’s stock gained almost 5% in extended trading, adding to a gain of 2% during the regular trading session.

Chief Executive Amar Maletira (pictured) told analysts that the results exceeded the company’s own guidance on all three major metrics. “Bookings grew double digits with the Public Cloud segment posting a record bookings quarter since the formation of the two business units,” he added. “I’m pleased with the steady progress we are making in both the businesses.”

Rackspace has changed a lot from the times when it was considered as a competitor to Amazon Web Services Inc. and Microsoft Corp. in the public cloud infrastructure business. Unable to match the investments of its former rivals, it instead got into bed with them around a decade ago, pivoting its business model to become a provider of managed cloud services, operating and maintaining cloud infrastructures on behalf of enterprises.

For a time that model succeeded, but Rackspace’s growth stalled once again around 2022, prompting it to hire a new CEO and undergo a second major restructuring of its business model. Nowadays, the company is more of a cloud consultancy, helping organizations architect hybrid and multicloud architectures and integrate cutting-edge technologies with them, such as artificial intelligence models.

That switch, announced in late 2022, saw Rackspace create two new business segments, for public cloud and private cloud, which account for the vast majority of its revenue today. The results are improving, but neither of the segments has enjoyed stellar success. During the quarter, private cloud revenue declined 14%, to $258 million, while public cloud revenue fell 3%, to $418 million.

Despite adapting its business model once again, Rackspace hasn’t completely exited the cloud infrastructure segment. It still offers a spot instance service called Rackspace Spot, and it’s looking to expand that offering. Earlier this month it announced a new data center location in San Jose, California, and launched a graphics processing unit-as-a-service option that gives customers access to Nvidia Corp. GPUs at prices determined by auction.

Also in the previous quarter, Rackspace it debuted a new, fully managed, enterprise-ready cloud service called OpenStack Enterprise. With that service, it’s basically offering to operate OpenStack clouds on behalf of customers, ensuring that critical workloads are secure and efficient and perform at large scale.

The results do at least suggest Rackspace might soon be able to return to growth in its public cloud business, and its guidance for the quarter can be seen as further cause for optimism.

For the fourth quarter, Rackspace is looking at a loss of between three and five cents per share, the midpoint just ahead of the Street’s target of a five-cent loss. In terms of revenue, the company is looking at a range of $668 million to $680 million, which is nicely ahead of the analysts’ $671.1 million target.

Photo: Rackspace