Shares of Rackspace Technology Inc. hit a hot streak today, rising during the regular trading period and then accelerating after the company posted its latest financial results at market close.
The results were solid, with Rackspace comfortably beating analysts forecasts on both earnings and revenue as it returned to profitability.
The cloud services provider reported a loss before certain costs such as stock compensation of eight cents per share, coming in ahead of Wall Street’s target of an 11-cent-per-share loss. Revenue for the period fell 8%, to $684.9 million, well above the consensus estimate of $673.6 million.
The strong results, as well as an income tax benefit of $30 million it didn’t have last year, helped Rackspace to deliver an overall net profit of $25 million in the quarter, rebounding from a $27 million loss in the year-ago period.
Today’s results demonstrate that Rackspace’s latest strategic realignment is beginning to pay off, emerging from a years-long period of decline that forced the company to transform its business – again.
Rackspace is no stranger to business turmoil. The company was once a competitor to public cloud infrastructure giants like Amazon Web Services Inc. and Microsoft Corp., but a lack of funding meant it was unable to match their investments.
The company pivoted in the middle of the last decade to become a provider of managed cloud services, operating cloud infrastructure on behalf of enterprises. But after a period of success, Rackspace once again fell into decline, prompting the company to ditch its former Chief Executive Kevin Jones in 2022 and undergo a second major restructuring of its business.
It’s now more of a cloud consultancy, helping customers architect hybrid and multicloud architectures and integrate cutting-edge technologies such as artificial intelligence models.
Amar Maletira (pictured), who designed the company’s latest pivot after replacing Jones as CEO in September 2022, hailed its performance in the second quarter. “We are focused on strengthening our pipeline in both Private and Public Cloud, stabilizing and growing revenue and profit while continuing to drive cost efficiencies,” he said. “We are pleased with the steady progress on all fronts.”
Rackspace’s growing profitability is evidence of that progress, for its two main business segments both declined in the quarter just gone. The private cloud segment reported sales of $260 million, down 17% from a year ago, reflecting a growing enterprise preference for public cloud infrastructures. The public cloud unit fared better, reporting revenue of $425 million in the quarter, but it was still down 2% from a year ago.
Still, investors were clearly impressed with Rackspace for exceeding analysts’ earnings and revenue estimates despite those declines. The increased profitability, and the reduction in operating losses are indicative of a business that might rebound and deliver new growth in the not-too-distant future.
Shareholders nodded in appreciation of the company’s turnaround. Rackspace’s stock rose more than 5% in the regular trading session, before accelerating and rising by an additional 11% after the market close.
No doubt the after-hours gains were helped by an overall optimistic forecast. For the third quarter, Rackspace said it’s looking for a loss of between six and eight cents per share on sales of between $668 million to $680 million. Wall Street is looking for a seven-cent-per-share loss on lower sales of $671.9 million.