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Rackspace ponders winding down business units following strategic company review

Rackspace Technology is considering selling at least one of its business units, having determined that the “sum of its parts” could be more valuable than the company in its current form.

The company’s CEO, Kevin Jones, made the admission in a statement, released in response to the release of the managed cloud provider’s first-quarter results, where he spoke of “robust revenue growth and profitability” managed the company during the first three months. of its financial year.

The company achieved a 7% year-over-year increase in revenue to $776 million, which the company attributed to new customer acquisition and an increase in the amount of money its current customers spend on its multi-cloud offerings.

Year over year, the results also revealed that the company’s losses narrowed from $64 million in the first quarter of 2021 to $39 million during the same quarter this year.

While the results have been seen as a positive development for Rackspace, Jones also confirmed in the statement that it recently concluded an in-depth strategic review of the business, which could result in parts of the business being sold.

“When we completed this strategic review, and also based on incoming interest in one of our businesses, we concluded that a sum-of-the-parts valuation of Rackspace Technology could be greater than our current enterprise value,” he said. “This is, in part, driven by the attractive growth profile of public cloud. Consequently, we are evaluating alternatives and strategic options. We will provide further information as appropriate in light of developments.”

In a conference call with analysts, transcribed by looking for alphathe company said it plans to be in a position to share more details about its future strategy by September 2022.

The call also provided more insight into why it is considering selling parts of its business, as the company continues to “reorganize” to have a “tighter focus” on its two core markets: private and public cloud. cloud.

“We operate in two very different multi-cloud markets with different operating models, growth trajectories and investment perspectives,” Jones said on the call. “On the one hand, public cloud is on a long-term secular growth spurt, and it’s a service-focused, capital-light product line where we can make smart investments to capture additional white space and growth opportunities. .

“On the other hand, private cloud and managed hosting are in a low-growth market where we focus on optimizing profits and free cash flow. Our strategy to maximize shareholder value is now coming into focus and therefore we are considering reorganizing Rackspace Technology in these two markets.”

News of the sale comes less than two years after Rackspace became a publicly traded company again, after its acquisition by private equity house Apollo Global Management in 2016 caused it to delist. of values.

At the time, the company was in the midst of repositioning itself as a managed services provider for customers of Amazon Web Services and Microsoft Azure, after seeing its attempts to go toe-to-toe with both companies in the public cloud space.

Speaking to the press in the wake of its acquisition by Apollo, the company’s then-senior leadership team said going private would allow it to continue working on its managed cloud strategy behind closed doors.

In August 2020, the company went public again with a $703.5 million Initial Public Offering, with its share price falling more than 20% during its first day of trading.