Rackspace Technology shares fall as guidance fails to impress

SAN ANTONIO - Rackspace Technology, Inc. (NASDAQ:RXT) reported better-than-expected fourth-quarter results, but shares fell 3.8% as investors appeared unimpressed with the company’s performance and outlook.

The hybrid cloud and AI solutions provider posted adjusted earnings per share of -$0.02 for the fourth quarter, beating analyst estimates of -$0.04. Revenue came in at $685.6 million, surpassing the consensus forecast of $674.98 million. However, this represented a 5% YoY decline from $720 million in the same quarter last year.

Rackspace’s private cloud revenue fell 6% YoY to $269 million, while public cloud revenue decreased 4% YoY to $417 million. For the full year 2024, total revenue dropped 7% to $2.74 billion.

CEO Amar Maletira commented, "We closed the year on a high note, exceeding guidance for fourth-quarter revenue, operating profit, and EPS. Our company achieved record-breaking quarterly sales bookings—the highest since the inception of our two business units."

Looking ahead, Rackspace provided first-quarter 2025 guidance that largely aligned with analyst expectations. The company forecasts revenue between $653 million and $665 million, compared to the consensus estimate of $659.6 million. Adjusted EPS is projected to be between -$0.07 and -$0.09, in line with the -$0.08 analyst estimate.

Despite the earnings beat and in-line guidance, investors seemed to focus on the continued revenue declines across Rackspace’s business segments. The company’s shares fell in after-hours trading, suggesting market participants were hoping for more robust growth signals.

Rackspace reported cash and cash equivalents of $144 million as of December 31, 2024, with no outstanding balance on its $375 million revolving credit facility.

BMO Capital analyst Keith Bachman reiterated a Market Perform rating and a price target of $3.50.

The analyst stated, "We think RXT demonstrated improvement in both reported results and sales execution through CY24 demonstrated by double-digit bookings growth, and notably good bookings in the December quarter. We believe there is potential for revenue decline to further improve in FY25, helped by these solid bookings, particularly in Private Cloud and within services in Public Cloud. We think RXT still has work to do to ultimately improve durable growth and profitability."

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