‘We’re Excited About 2 Business Units’

Kevin Jones gave analysts some insight into upcoming changes at the giant managed service provider.

Don’t expect any deep insight into a possible Rackspace restructuring until next month.

The Texas-based managed cloud computing provider has said it would not reveal any new details until its analyst day in September. But some observers were hoping for a little bit of info on Aug. 9 when Rackspace released its second-quarter earnings.

Rackspace’s Kevin Jones

There were a couple of clues about where Rackspace is headed. At first, all CEO Kevin Jones would say in response to analysts was, “[W]I’m excited about this organization into two business units. We see really strong demand on the … public cloud side of things and also strong demand on the private cloud side of things.”

But then he added this:[W]with our restructuring, we are realigning the go-to-market organization,” he said.

Knowing that’s on the way, Jones added, “we think it’s prudent to plan for a little bit of disruption in the back half of the year as the team is going to kind of work through these changes. Now with that said, our leadership team is experienced and we’re confident that we’re driving the company towards the right operating model. So as the go-to-market teams embrace the changes, the business will stabilize, will then accelerate and as I’ve talked about, our partners expressed very strong support for the transformation forming.”

Amar Maletira, president and CFO at Rackspace, agreed. Next month, he said, “we look forward to sharing more details on the financial profile of both the public cloud and private cloud businesses. And currently, we are deep into the detailed planning of this realignment that Kevin talked about and we’ll begin in the early stages of implementation of the new operating model in our fiscal Q3.”

Why Is Rackspace Restructuring?

Rackspace has struggled to define itself in a crowded market. A veteran of corporate reorganizations, the company once more faces decisions about how to best compete as organizations seek help with digital transformation. As cloud computing emerged to dominate the tech space, Rackspace repositioned itself as a rival to Amazon Web Services, Microsoft Azure and Google Cloud. But it couldn’t quite keep pace with those firms, so it switched to a managed service provider model. Now, Rackspace ranks as a top partner for the hyperscalers, even as it tries to determine its footing.

In May, another Rackspace restructuring or sale looked likely, although executives said that selling some parts of the organization might make more sense than offloading the entire company. Private cloud appeared to be the biggest target in the crosshairs. Jones’ comments on Tuesday, however, indicate that perhaps Rackspace is considering breaking into two businesses, rather than selling.

Rackspace's Amar Maletira

Rackspace’s Amar Maletira

“[O]ur salespeople will be incented to sell both public cloud and private cloud,” Maletira told analysts on Tuesday.

To be sure, Rackspace sees a sizable opportunity in the public cloud. Last month, it hired Dharmendra Sinha from Cognizant to serve as its first president of public cloud. Perhaps with that in mind, Jones told analysts on Tuesday, “[W]e’re certainly continuing to double down on public cloud.”

With Rackspace Restructuring in the Works, How Did Q2 Earnings Fare?

Rackspace’s second-quarter financials fell on the weak side, which came as little surprise. Rackspace itself had provided lower guidance on its second-quarter per-share earnings than analysts were projecting. (They wanted to see 23 cents per share. Rackspace said the figure would be more like 15-17 cents, and it was the latter, before accounting for certain costs.)

Indeed, Rackspace reported a net loss of $40.6 million for the three months ended June 30. Its revenue rose a mere 4% compared to a year ago, and $12.5 million less than analysts’ forecasts.

The company has boomeranged in recent years between Wall Street and private ownership. It last went public in 2020 after emerging from private ownership in 2016. Before that, Rackspace traded publicly. It’s unknown how or whether the upcoming Rackspace restructuring will impact its Wall Street presence.

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