Despite earnings and revenue beat, Rackspace’s stock sinks on weak outlook

Cloud computing services firm Rackspace Technology Inc. took a beating in extended trading today, its stock down more than 15% on weaker-than-expected guidance for the coming quarter and full year.

That followed solid fourth-quarter financial results that beat expectations on earnings and revenue. Rackspace reported a profit before certain costs such as stock compensation of 25 cents per share on revenue of $777 million, up 9% from the same period one year ago. The company’s net loss for the quarter came to $63.8 million.

That was better than expected, with Wall Street looking for an adjusted profit of 24 cents per share on revenue of $771.22 million.

Long ago, Rackspace used to compete with giants such as Amazon Web Services, Microsoft Azure and Google Cloud in the public cloud computing infrastructure market. Unable to keep up with those rivals for lack of funding, it eventually pivoted to helping enterprises design, build and operate cloud environments and manage services on those rival platforms instead.

Rackspace Chief Executive Kevin Jones (pictured) said the company ended the year well and that it continues to execute on its mission to lead the cloud services market. “We accomplished this while executing our pivot from mature to growth businesses, improving our cross-sell and up-sell of higher margin services to our installed base, reducing our cost structure, and investing in new product offerings and service delivery,” he said.

Rackspace said its “core revenue” for the quarter came to $734 million, up 11% from a year ago. The core revenue comes from the company’s main growth businesses, namely its Multicloud Services, which rose about 12%, to $639.3 million, and Apps & Cross Platform segment, where revenue rose almost 4%, to $94.8 million.

Rackspace also has an OpenStack Public Cloud business whose revenue declined almost 18%, to $43.2 million.

The company also reported record quarterly bookings of $329 million, up 12% from a year ago. Bookings are a forward-looking metric that represent customer commitments to spend money on services over a future period of time.

For fiscal 2021, Rackspace reported total revenue of $3.01 billion, up 11% from a year ago.

But it all went wrong when Rackspace offered guidance for the next quarter. The company said it expects first-quarter adjusted earnings of between 20 and 22 cents per share, with revenue in a range of $768 million to $778 million. Wall Street is looking for earnings of 26 cents per share on revenue of $789.5 million.

Photo: Rackspace