IPO flop: Rackspace stock loses 20% on first day of trading – SiliconANGLE

Cloud services company Rackspace Technology Inc. re-entered the public markets today and saw its stock fall 20% on its first day of trading.

Still, it raised $704 million following an initial public offering that was priced at the bottom of its marketed range. The company, which sells cloud management services to enterprises, went private in 2016 after being bought by the private equity firm Apollo Group Management for $3.4 billion.

In its IPO, Rackspace offered 33.5 million shares at $21 a piece, the low end of its price range. It began trading on the Nasdaq exchange under the RXT ticker, but the stock closed down at $16.39 at the end of the first day, for a valuation of about $3.3 billion.

Rackspace helps to design, build and operate cloud computing environments for enterprise customers across major technology platforms including Amazon Web Services, Microsoft Azure and Google Cloud. The company has more than 120,000 customers in 120 countries and counts 6,800 employees.

The firm started out as a provider of web hosting services back when it was founded in 1998, and emerged as an early player in the cloud computing space, where companies rent out computing resources and data center space to customers on an on-demand basis. But Rackspace quickly lost out in that market to better-funded rivals such as Amazon.com Inc. and Microsoft Corp., prompting it to shift its focus to managing those services for customers instead.

“We partner with our customers at every stage of their cloud journey, enabling them to modernize applications, build new products and adopt innovative technologies,” Rackspace said in its IPO filing.

Rackspace Chief Executive Kevin Jones told Fortune that the company no longer competes with Amazon, Microsoft and Google but instead works alongside them.

“Now they’re our biggest partner,” Jones said of Amazon. “We look at them as our sales team and research and development team.”

Rackspace’s transformation was enabled by its decision to stop offering its own cloud computing services and instead forge alliances with those former rivals. It also made several acquisitions to help it in the cloud management business.

The company is now positioned to seize an emerging opportunity around multicloud transformation by leveraging those partnerships, Rackspace Chief Solutions Officer Matt Stoyka told CRN.

“The multicloud opportunity is real,” he said. “Even a year ago, it wasn’t as real as it is today. We’re seeing it every day from our customers.”

Rackspace faces competition in cloud management from rivals such as Accenture Plc, which sells consulting services, and IBM Corp. and Hewlett-Packard Enterprise Co., which sell software and services to help customers control their cloud-based information technology infrastructure. But Jones told Fortune that Rackspace is “much more agile” than those rivals because they don’t specifically focus on cloud management.

“Rackspace has reinvented itself around services and it definitely has a growth opportunity in multicloud,” said Constellation Research Inc. analyst Holger Mueller.

Rackspace said in its S-1 filing that it will use most of the cash raised from its IPO to pay off its debt. The remainder of the cash will be used to accelerate the development of its cloud optimizations, cloud security, cloud native enablement and data modernization technologies, it said.

Photo: Anton Olsen/Flickr

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