Aug. 18, 2014, 4:56 PM
- The WSJ reports activist Blue Harbour Group has grown its stake in Rackspace (NYSE:RAX) to ~6.5% from the 2.5% it had at the end of Q2. The paper adds Blue Harbour has "communicated" with the Web hosting/IaaS provider, which says it's still evaluating strategic options.
- The report comes 4 days after Dan Loeb's Third Point LLC disclosed it had a 7.25M-share position (good for a 5% stake) at the end of Q2.
- Update: Blue Harbour has filed a new 13D disclosing a 6.4% stake.
Aug. 14, 2014, 12:06 PM
- Dan Loeb's Third Point LLC took a 7.25M-share position in Rackspace (RAX +4.3%) in Q2, along with a 3.5M-share position in Finisar (FNSR -0.2%) and a 2M-share position in InterActiveCorp (IACI +1.7%). (13F)
- Rackspace has jumped on the disclosure. The Web hosting/IaaS provider remains in the midst of a strategic review, and has been the subject of many M&A rumors.
- Finisar has ticked higher after selling off earlier in the wake of Cisco and Oclaro's reports. Shares fell yesterday in response to JDS Uniphase's guidance.
- IAC has moved slightly higher. Shares were already up following news the company has bought Ask.fm.
Aug. 12, 2014, 12:10 PM
- "Management provided no color with regard to the strategic alternatives the board is evaluating and did not provide a timeline for a decision," observes Piper's Andrew Nowinski, discussing Rackspace's (RAX -7.2%) cautious CC remarks (transcript) about its strategic review.
- Nonetheless, Nowinski declares Rackspace's business to be "in good shape," as proven by "accelerating growth in the dedicated segment and better-than-expected revenue guidance."
- Pac Crest's Michael Bowen isn't pleased management stated it's thinking of no longer providing guidance and/or breaking out Web hosting and public cloud revenue. "We believe now is not a good time to become less transparent due to uncertainties around an M&A deal and changes in the marketplace."
- Multiple analysts have taken note of Rackspace's EBITDA margin decline. CFO Karl Picher suggested Rackspace's revamped pricing will eventually boost margins. "We expect that we will have fewer low-paying customers than we currently have ... we are aiming for the high ARPU, high workloads, growing customer set that we serve exceptionally well."
- Prior Rackspace earnings coverage
Aug. 11, 2014, 4:51 PM
- Rackspace (NYSE:RAX) expects Q3 revenue of $454M-$461M, largely above a $454.2M consensus.
- Amid intense cloud infrastructure (IaaS) price competition, adjusted EBITDA margin fell to 32.1% in Q2 from 33.2% and 32.8% a year ago, pressuring EPS. Rackspace expects a margin of 31%-33% in Q3; it recently overhauled its IaaS pricing in an attempt to stand out from rivals.
- Dedicated cloud (Web hosting) revenue +12% Y/Y to $310.6M. Public cloud (OpenStack) revenue +32% to $130.5M.
- Adjusted free cash flow was $26.3M, down from $39.9M in Q1 and up from $11.5M a year ago. Capex rose 11% Q/Q to $112.4M (25% of revenue).
- Net upgrade rate rose to 1.5% from a depressed 0.9% in Q1, while churn improved to -0.7% from -0.6%. Average revenue/server grew 2.9% Q/Q to $1,375, and servers deployed 1.4% to 107.7K.
- Following a slew of M&A rumors, Rackspace says it's still exploring its options.
- RAX -1.1% AH. Q2 results, PR.
Aug. 11, 2014, 4:08 PM
Aug. 10, 2014, 5:35 PM
Jul. 15, 2014, 1:41 PM
- Rackspace (RAX -1.7%) is breaking up its cloud infrastructure (IaaS) offerings into two service tiers: A basic Managed Infrastructure tier that provides standard IaaS services and technical support, and a Managed Operations tier that adds "proactive features such as a dedicated account manager, 24x7 availability monitoring and response, and management of common operating systems and application stacks."
- The company is also now providing its Cloud Monitoring service for free to all IaaS clients, and launching a program (called developer+) that provides cloud app developers a bundle of services for free for 12 months. As GigaOm notes, Amazon currently has a big edge in developer support; Google is also trying hard to woo developers.
- Rackspace argues its new pricing structure allows it to offer "a service level agreement that is not available with other providers," and makes clear to buyers they're receiving services not provided by cheaper rivals. CTO John Engates: "People looked at our price and the AWS price and thought they were comparing apples to apples. In reality, we had apple pie, not apples."
- Amazon, Google, and Microsoft's aggressive IaaS pricing has weighed on Rackspace's shares for some time. The company has already declared it'll compete on service quality rather than price.
Jul. 11, 2014, 5:45 PM
- Rackspace (RAX -5.4%) has received "only modest buyer interest" since putting itself on the block, BrightWire reports. Shares have added to the Thursday losses they saw following a re/code report stating sources have denied H-P made a bid.
- BrightWire states CenturyLink (CTL - unchanged) "made an initial overture" to buy Rackspace, but adds its interest "was only casual and soon faded." Citi made the case for a Rackspace/CenturyLink deal last month.
- Separately, Wells Fargo's Gary Powell says talks make him consider a Rackspace LBO deal (would involve P-E firms) unlikely, and that the market has "correctly assumed" a 70%+ probability that no strategic buyer (i.e. a tech company) will emerge.
- Nonetheless, Powell reiterates an Outperform, and calls Rackspace's asset value under-appreciated. He adds CenturyLink and H-P "have not completely ruled out a potential deal with RAX."
Jul. 10, 2014, 12:51 PM
- Mark Interrante, until now Rackspace's (RAX -2.1%) SVP of products and engineering, has been hired by H-P (HPQ +0.4%) to be the SVP of engineering for the company's cloud services unit
- Both H-P and Rackspace offer cloud infrastructure (IaaS) services based on the OpenStack platform; Rackspace is an early leader within the market. H-P also offers cloud app platform (PaaS) services with the help of a partnership with Cloud Foundry (a part of EMC/VMware's Pivotal spinoff). Each company faces intense competition from Amazon, Google, and Microsoft.
- Meanwhile, re/code states multiple sources have "categorically denied" a TechCrunch report stating H-P made a $43/share bid for Rackspace. As it is, dealReporter had expressed skepticism about the reliability of a source providing similar info.
Jul. 2, 2014, 3:13 PM
- "We've tried to make clear that we're reporting an unconfirmed source here, but an interesting angle nonetheless," says TechCrunch, updating this morning's story suggesting Rackspace (RAX +6.4%) is in talks with a P-E firm about taking itself private.
- Far more skeptical, Dealreporter says it received a note with similar wording to that of the TechCrunch story, but didn't believe the source.
- Though off the highs a bit, Rackspace nevertheless continues to post a sharp gain on the session.
Jul. 2, 2014, 9:15 AM
Jul. 2, 2014, 8:13 AM
- Rackspace (RAX) is in talks with a P-E firm about a deal to take the company private, reports TechCrunch, with an eye towards maybe making an official announcement this week.
- "The pressures of being a public company are too much," says one source, and the idea of going private "has gained sufficient traction" in the boardroom.
- The going-private leak comes amid at least three acquisition bids, says TC, including one from H-P (HPQ) for up to $43 per share.
- RAX +9.6% to $37 premarket
- Previously: Rackspace falls on negative M&A report
Jun. 27, 2014, 2:00 PM
- Sources tell dealReporter Rackspace (RAX -4.3%) is failing to draw interest from strategic suitors as it continues evaluating its options.
- Shares have sold off on the report after spending most of the day up slightly. They flew higher last month thanks to a report stating Rackspace had hired Morgan Stanley to evaluate "inbound strategic proposals" and other options.
- Previous: Citi calls CenturyLink "a good fit" for Rackspace
Jun. 20, 2014, 10:10 AM
- Acquiring Rackspace (RAX +1%) would double CenturyLink's (CTL - unchanged) data services revenue, boost top-line growth, increase "customer stickiness," and "modestly [raise] leverage," writes Citi's David Phipps, making the case for a deal.
- At the same time, Phipps estimates a deal for Rackspace ($5.3B current market cap) would require ~$6B in financing, which in turn would lead to a credit downgrade for CenturyLink.
- CenturyLink spent $2.5B in 2011 to buy Web hosting and cloud infrastructure (IaaS) firm Savvis. But it also took a $1.1B charge last fall for its data hosting unit. The company has since bought another IaaS firm (Tier 3), and begun moving its managed data services to its cloud.
- Rackspace, a major Web host and the top provider of IaaS services based on the OpenStack platform, has reportedly hired Morgan Stanley to evaluate "inbound strategic proposals" and other options.
- Both Rackspace and CenturyLink are facing intense price competition from market leader Amazon, as well as Microsoft and Google.
- Previous: CenturyLink counting on data centers, network to challenge Amazon
May. 16, 2014, 12:46 PM
May. 16, 2014, 9:52 AM
- "Because Rackspace (RAX +18.4%) operates the largest production deployment of OpenStack and is the [#2] public cloud provider to [Amazon], it could be a strategic asset to other companies ... such as AT&T, IBM, EMC, HP, and VMware," says Blair's Jim Breen following a Bloomberg report about Rackspace's hiring of Morgan Stanley to evaluate "inbound strategic proposals."
- Worth noting: IBM, H-P, AT&T, and VMware already offer their own cloud infrastructure services, and VMware supports an OpenStack rival (its vCloud platform). Moreover, any potential buyer will likely take a close look at Rackspace's long-term ability to handle Amazon/Microsoft/Google's aggressive pricing.
- Nonetheless, the Street sees plenty of possibilities, given Rackspace's size and OpenStack software/services investments. Dell and Cisco are a couple of the other names brought up. Blair thinks Rackspace could get $54/share, given recent deal prices.
- Over 11% of the float was shorted as of April 30. Shares are up 29% since Bloomberg's report broke just before Thursday's close.
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