Still, multicloud service provider raises $704 million after joining Nasdaq
Rackspace Technology’s first day of trading Wednesday as a public company saw its share of ups and downs. The multicloud managed service provider raised $704 million, but it saw the per-share price of its stock fall from the price it set at $21 to $16.17, a drop of about 20%.
The Lowdown: The IPO on the Nasdaq came 12 years after Rackspace’s first initial public offering and four years after the San Antonio, Texas-based company went private following its $4.3 billion acquisition by private equity firm Apollo Management.
The Details: The Apollo acquisition led to an increase in Rackspace’s debt burden, which stands at about $3.9 billion, CEO Kevin Jones told Fortune, and the company plans to use some of the money raised from the IPO to pay down the debt. While it counts such public cloud providers as Amazon Web Services (AWS), Microsoft Azure, and Google Cloud as partners, it also competes with the likes of IBM and Hewlett Packard Enterprise.
Rackspace has evolved rapidly in recent years, moving from a colocation and managed hosting service company to an MSP and full technology service provider and going from competing with AWS and Microsoft to partnering with them.
The transformation has accelerated under Jones, who took over the top spot a year ago. In June, the company announced a greater strategic focus on the growing multicloud field with an array of new solutions – Cloud Optimization, Cloud Security, Cloud Native Enablement, and Data Modernization – and a new name.
In a statement filed with the Securities and Exchange Commission last month, Rackspace, which has 6,800 employees, noted that the COVID-19 pandemic has grown demand for cloud computing, saying that it has “accelerated cloud transformation efforts for new and existing customers and underscored the importance and mission-critical nature of multicloud strategies. Over the last several months, customers have increasingly turned to multicloud solutions to pivot to new business models and save costs.”
In the statement, company officials said a “paradigm shift is underway; today’s businesses are increasingly under pressure to move away from self-managed IT solutions and utilize multicloud technologies to compete effectively in a digital economy, resulting in a tailwind for technology and service providers that possess deep expertise in these areas.”
This indicates a growing demand for cloud technology services and an opportunity to compete with a market that Gartner says will grow from $410 billion this year to $502 billion by 2023.
The Impact: The influx of money through the IPO will give the company resources to not only pay down its debt but also continue to invest in the multicloud services it offers customers, which will benefit its 900 sales professionals and more than 3,000 channel partners. Rackspace, which has about 120,000 customers in 120 countries, generated $2.4 billion in revenue last year – 95% of which is recurring revenue – and sees a market opportunity of about $400 billion.
The Buzz: “We’re in the middle of a tectonic shift to multicloud technology,” Jones told MarketWatch. “It is the right place, right time for our transformation. We used to compete with hyperscalers in cloud like Amazon, Google, and Microsoft. Now we partner with them.”