- Rackspace Technology, Inc RXT reported second-quarter FY22 revenue growth of 4% year-on-year to $772 million, missing the consensus of $792.9 million. Non-GAAP EPS of $0.17 beat the consensus of $0.16.
- Raymond James analyst Frank Louthan downgraded Rackspace from Outperform to Market Perform. Given the disruption to the sales team and other parts of the organization that is inherently part of that process, he believed growth recovery and improved FCF is 9-12 months away.
- Louthan believed the new Head of Public Cloud comes with a strong background. The company is correct to get this unit on track before focusing on Private Cloud, but that does not change the inherent growth slowdown these changes to sales and leadership will inevitably bring.
- RBC Capital analyst Daniel Perlin maintained Rackspace with an Outperform and cut the price target from $16 to $9. The rerating reflected mixed results and disappointing guidance.
- BMO Capital maintained Rackspace with a Market Perform and lowered the price target from $10.5 to $7. While reported results were decent, he viewed guidance as disappointing, including comments around 2023.
- He believed Rackspace is in the early innings of formulating and implementing its business transformation in separating its public and private cloud businesses.
- This process will be a headwind to growth and profitability in the near and medium term, in his view, and his estimates moved meaningfully lower for FY22 and FY23.
- Credit Suisse analyst Kevin Mcveigh kept Rackspace with an Outperform and reduced the price target from $12 to $10. He expected the stock to react negatively as the market discounted a Q2 revenue miss and disappointing Q3 guide.
- Mcveigh waited for Rackspace to provide more details about its future structure. He thinks Rackspace has to develop and execute a plan positioning it for gross margin stabilization, including growing the “expand” vs. “land” part of its business by cross-selling.
- Price Action: RXT shares closed lower by 15.70% at $5.80 on Wednesday.
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