The sky isn’t always the limit. Rackspace Hosting Inc. is finding that out the hard way.
Shares in the cloud-services provider have lost nearly half their value over the past six months as revenue growth has slowed and competition has picked up. While it may be tempting to think the worst is over for Rackspace as it reports third-quarter results Monday, it probably isn’t.
Rackspace, a pioneer in the cloud market, has transitioned its business model in recent years to become more of a services provider, one that offers bundled computing and support. To combat rising competition and a price war from the likes of Microsoft Corp.,Alphabet Inc.’s Google unit and International Business Machines Corp., Rackspaceannounced a partnership last month with Amazon.com Inc.’s cloud-computing platform, Amazon Web Services.
Yet the deal didn’t do much to juice Rackspace’s flagging stock price. Skepticism rightly remains over how beneficial the partnership will be for Rackspace’s top line, particularly because it is entering an already crowded market for Amazon’s support services.
Analysts at Evercore ISI reckon leading providers in that market generate roughly $100 million of annual revenue from supporting Amazon’s Web services unit. With Rackspace expected to generate $2 billion in revenue in 2015, that wouldn’t move the needle all that much.
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