Rackspace Technology, Inc.
Information Technology · IT Services
STRUCTURE: Rackspace is a third-party integrator sitting between enterprises and the hyperscalers ($AMZN $MSFT $GOOGL). 7B, split roughly 60/40 public-cloud vs private-cloud/colocation. 1B net debt post-LBO constrains strategic flexibility; interest expense consumes the majority of operating cash flow.
Gross margins ~21% reflect the labor-intensive services mix.
• Multicloud complexity grows - enterprises increasingly need a neutral integrator to manage $AMZN/$MSFT/$GOOGL simultaneously
• Cost-optimisation mandates push CIOs toward managed services (vs hiring in-house cloud teams)
• Private cloud & sovereign-cloud demand (regulated industries, EU data residency) remains sticky
• Any debt restructuring or balance-sheet repair would unlock equity optionality at current beaten-down multiples
• AI-infra managed services is an emerging upsell - Rackspace has GPU-cluster management capabilities
• ~$2.1B debt at floating rates = existential risk if free cash flow deteriorates; debt covenants are tight
• Hyperscalers ($AMZN $MSFT $GOOGL) are commoditising the managed-layer with native tooling (AWS Managed Services, Azure Arc)
• Secular revenue decline in private/legacy cloud as workloads migrate public
• High churn risk - customers eventually graduate to in-house ops or direct hyperscaler relationships
• No pricing power; contract renewals under persistent margin pressure from offshore competitors
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