reported<\/a> a loss before certain costs such as stock compensation of eight cents per share, coming in ahead of Wall Street\u2019s target of an 11-cent-per-share loss. Revenue for the period fell 8%, to $684.9 million, well above the consensus estimate of $673.6 million.<\/p>\nThe strong results, as well as an income tax benefit of $30 million it didn\u2019t have last year, helped Rackspace to deliver an overall net profit of $25 million in the quarter, rebounding from a $27 million loss in the year-ago period.<\/p>\n
Today\u2019s results demonstrate that Rackspace\u2019s latest strategic realignment is beginning to pay off, emerging from a years-long period of decline that forced the company to transform its business \u2013 again.<\/p>\n
Rackspace is no stranger to business turmoil. The company was once a competitor to public cloud infrastructure giants like Amazon Web Services Inc. and Microsoft Corp., but a lack of funding meant it was unable to match their investments.<\/p>\n
The company pivoted in the middle of the last decade to become a provider of managed cloud services, operating cloud infrastructure on behalf of enterprises. But after a period of success, Rackspace once again fell into decline, prompting the company to ditch its former Chief Executive Kevin Jones in 2022 and undergo a second major restructuring of its business.<\/p>\n
It\u2019s now more of a cloud consultancy, helping customers\u00a0architect hybrid and multicloud architectures and integrate cutting-edge technologies such as artificial intelligence models.<\/p>\n
Amar Maletira (pictured), who designed the company\u2019s latest pivot after replacing Jones as CEO in September 2022, hailed its performance in the second quarter. \u201cWe are focused on strengthening our pipeline in both Private and Public Cloud, stabilizing and growing revenue and profit while continuing to drive cost efficiencies,\u201d he said. \u201cWe are pleased with the steady progress on all fronts.\u201d<\/p>\n
Rackspace\u2019s growing profitability is evidence of that progress, for its two main business segments both declined in the quarter just gone. The private cloud segment reported sales of $260 million, down 17% from a year ago, reflecting a growing enterprise preference for public cloud infrastructures. The public cloud unit fared better, reporting revenue of $425 million in the quarter, but it was still down 2% from a year ago.<\/p>\n
Still, investors were clearly impressed with Rackspace for exceeding analysts\u2019 earnings and revenue estimates despite those declines. The increased profitability, and the reduction in operating losses are indicative of a business that might rebound and deliver new growth in the not-too-distant future.<\/p>\n
Constellation Research Inc. analyst Holger Mueller told SiliconANGLE that life remains tough at Rackspace as it struggles with declining revenues.<\/p>\n
\u201cFor a long time it looked like it was only a question of how private cloud revenue could be transformed into public cloud revenue, but now it has become clear that Rackspace also needs to drive organic growth in its public cloud business,\u201d he said. \u201cThrough cost cutting across the board of more than $30 million, the company almost became profitable. The only reason it did deliver a profit this time was because of a one-time income tax benefit. Investors will want to see more cost-cutting, and a return to revenue growth, in the next quarter.\u201d<\/p>\n
Shareholders nodded in appreciation of the company\u2019s turnaround. Rackspace\u2019s stock rose more than 5% in the regular trading session, before accelerating and rising by an additional 11% after the market close.<\/p>\n
No doubt the after-hours gains were helped by an overall optimistic forecast. For the third quarter, Rackspace said it\u2019s looking for a loss of between six and eight cents per share on sales of between $668 million to $680 million. Wall Street is looking for a seven-cent-per-share loss on lower sales of $671.9 million.<\/p>\n
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