Rackspace Won't Divest, Eyes Public, Private Cloud Realignment

Rackspace will not divest part of its business, concluding an exploration that included talks with at least one buyer.

The Texas-based cloud services company publicly confirmed the growing sentiment that it would remain a single company. Rackspace chief marketing officer Casey Shilling told the San Antonio Express-News this week that Rackspace doesn’t plan to divest or spin off any assets.

“We did evaluate several strategic options, including an inbound interest. We decided that continuing to execute our strategy in the hypergrowth multicloud market as a standalone company is our best path forward for value creation,” Shilling said.

Rackspace’s Casey Shilling

Rackspace disclosed in May that it had conducted a strategic review of the entire company. It found that a “sum-of-the-parts valuation” might exceed the company’s current value.

Moreover, the rise of public cloud played a big role in that observation.

“[W]e operate in two very different multicloud markets, with different operating models, growth trajectories and investment prospects,” CEO Kevin Jones told investors earlier this year. “On one hand, public cloud is right in a long-term secular growth wave and is a services-centric, capital-light product line where we can make smart investments to capture additional whitespace and growth opportunities. And on the other hand, private cloud and managed hosting is in a low-growth market where we’re focused on optimizing profit and free cash flow.”

Realignment

Executives did note, however, in Rackspace’s Aug. 9 earnings call, that the company will be realigning into two business units for public cloud and private cloud.

More information is coming, according to chief financial officer Amar Maletira.

Rackspace’s Amar Maletira

“We have our executive leadership team identified and we are accelerating this transition, which we expect will create some near-term disruption over the next few quarters,” Maletira said on the earnings call.

Jones said Rackspace is seeing demand for both public and private.

Rackspace’s Kevin Jones

“And this is going to result in lots of opportunities for migrations, for integrations or managed services. These are, of course, great businesses and good margin businesses for Rackspace Technology,” Jones told analysts.

He pointed to the ongoing dominance of public cloud companies. Rackspace earlier this year won AWS’s migration partner of the year.

“And hyperscalers, they’re on a roll, right? They continue to innovate, they’re progressing now at such a pace that customers have lots of options and customers need help to handle the massive complexity of the multicloud environment. So we’re certainly continuing to double down on public cloud and we need to do it certainly at the right margin.”

Jones also pointed to private cloud partnerships with Dell and VMware. For example, VMware will deploy its SASE platform in 15 Rackspace data centers, and last year the companies launched Rackspace services for VMware Cloud.

Partner Perspective

Mejeticks’ Robert DeVita

Rob Devita is CEO for IT advisory and consulting firm Mejeticks. He said his company does not sell Rackspace, citing his perception of the vendor’s vision.

“We don’t see them as a viable player for any of our customers because of the constant reshuffling of priorities. This is just more of the same from them over the last 15 years,” Devita told Channel Futures. “If you are restructuring yourself, and no one at the top is changing, then it means the focus and direction over the last few years were miscalculated. I’m not sure how you can trust the same people to restructure.”

Global partner channel chief of managed cloud Michael Stephens and global vice president alliances and channel chief Lisa McClin left the company earlier this year, both citing new opportunities they wanted to pursue.