Rackspace's share price tumbles amid talk of revenue slump

Rackspace talks up prospect of supporting users of other firms' cloud services after lacklustre second-quarter guidance causes share price to plummet

Rackspace claims to be making good progress on building out support offerings for users of other cloud services aside from its own.

The provider has been trying to reposition itself as a purveyor of managed and supported cloud services since it made an abortive attempt in 2014 to court a buyer.

According to Rackspace, the managed cloud approach benefits customers because it means they don’t have to hire network or server admins to support their business, as it takes care of those kind of tasks for them.

The firm has now turned its attention to providing similar services to users of other cloud platforms, revealing on a conference call to discuss its first-quarter results that it has already approached several interested parties.

“We are exploring the viability of delivering [Rackspace's service offering] Fanatical Support on other leading cloud platforms beyond our own,” said Rackspace president, CEO and director Taylor Rhodes on the call, which was transcribed by Seeking Alpha.

“This is an important priority that we’re working on everyday. We are having conversations with potential partners and we are developing internal solutions to help us build a service model on one or more of the largest providers.”

While Rackspace stopped short of naming names, Amazon Web Services looks like a safe bet, as the firm is sometimes criticised by users about how little support they receive when trying to integrate and deploy the cloud giant’s self-service features.

Elsewhere on the call, Rhodes said the demand for managed services has increased over time, as the complexities of deploying apps in the cloud has left companies facing the prospect of investing huge sums in acquiring “technically advanced” staff to support them.

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“This means that the new scarcity is the availability of the skills of the cloud age that can make it all work, or what we call economies of expertise,” he added.

“Every company must answer the question: who is going to manage my cloud? And choose between the unmanaged cloud or the managed cloud model.”

Dark clouds ahead

While the company claims to have seen a steady rise in demand for its managed cloud services, it used its results for the first quarter of 2015 to forewarn investors that it expects to post lower than expected revenue during its next quarter.

The company predicted revenue for the second quarter of 2015 will be between $487m and $492m, while analysts had forecasted a revenue north of $500m for the period.

Rhodes blamed the shortfall on the time it takes to close down enterprise deals, with the money from some deals taking a while to trickle through.

The other cause has been described by Rackspace as a “unique circumstance” that has meant one of its largest customers has had to move part of its operations from the firm’s UK datacentre to another site in Africa.

“This results in a one-time revenue reduction at the beginning of the second quarter. We retain all other environments and a healthy relationship with this customer, and expect to grow this revenue back with them over time,” said Rhodes.

Despite these assurances and the news its profits grew by 12% year-on-year to $28.4m in the first quarter of 2015, the company’s share price fell by 13% in after-hours trading.

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