Rackspace divests Cloud Sites as managed cloud services take off

Rackspace offloads ‘non-core’ Cloud Sites business as speculation about its future as a public company continues

Rackspace has offloaded its Cloud Sites web hosting business as speculation about the company’s future as a publicly traded entity continues to grow.

The managed cloud services provider’s CEO and president Taylor Rhodes confirmed the divestiture of Cloud Sites to fellow web hosting outfit Liquid Web on a conference call with analysts to discuss its second-quarter financial results.

The second quarter saw the company report a 26% year-on-year rise in profit to $35m and a 7.2% increase in turnover to $524m as well as a surprise downward revision of its financial expectations for the year ahead.

The downturn in its financial forecast is partly the result of the company’s decision to offload non-core business assets such as Cloud Sites and the economic uncertainty caused by the UK’s vote to exit the European Union, the company said.

“We've seen somewhat higher churn rates and some slowdown in spending among our UK customers, some of whose businesses have suffered from the currency fluctuations and uncertainty that have followed the Brexit vote,” said Rhodes, according to a conference call transcript from Seeking Alpha.

Leaner and more efficient

However, Rhodes said the divestitures should help make Rackspace a leaner and more efficient organisation in the long run, while the growth of its managed cloud services business should offset some of the potential damage caused by Brexit.

Indeed, the company spent much of the analyst call talking up the success of its decision to reposition itself as a provider of managed support services for users of Amazon Web Services (AWS) and Microsoft.

Rackspace said it had signed up 277 users to its AWS-focused managed service, which launched in October 2015. Existing customers made up around half of this group.

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“What we face is a huge opportunity to the lead here,” said Rhodes. “Some of you may have wondered at times whether Rackspace matters in a post-AWS world.

“Our answer is that not only do we matter, we face a bigger opportunity than we have at any moment in our 17-year history, and we are executing against this opportunity at a quickening pace.”

News of Rackspace’s financial performance followed reports suggesting the publicly traded company could be on the verge of being acquired by a private equity house. Reuters suggesed its would-be suitor could be Apollo Global.

On the call, Rhodes would not be drawn on the possibility of Rackspace being acquired. 

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