Rackspace has reported results that surpassed expectations for the final quarter of 2015 but it acknowledged its faces an uphill struggle and fortunes may now be tied to Amazon Web Services (AWS).
Though the Texas-based managed cloud company reported net revenue for the fourth quarter of 2015 to be up by 10.7% on the same period in 2014 it expects a fall in the next financial quarter. Rackspace predicted that the Q4 revenue total of $523 million will fall to around $517 million in the next quarter (Q1 2016). For the full year of 2016, Rackspace expects revenue to be between $2.08 billion and $2.16 billion.
Top of the highlights that Rackspace listed for the year 2015 was the strategy to support AWS, Microsoft’s Azure public cloud and Microsoft Office 365. These moves will open up ‘huge and fast-growing new markets’, predicted CEO Taylor Rhodes. “We intend to be the number one managed services provider for AWS, and we are well on our way toward that goal.”
Outsourcing has made the company more dynamics, according to Rhodes: “Our business is becoming less capital intensive, resulting in higher free cash flow.”
Capital efficiency initiatives helped Rackspace reduce capital expenditures to 23% of its revenue, and the company’s adjusted free cash flow rose to $196 million for 2015. Rackspace shared its increased Adjusted Free Cash Flow with stockholders through a major share buyback that is still underway.
Since the October launch of Rackspace Fanatical Support for AWS, Rackspace has won 100 customers, while its technical support team has collectively earned 230 AWS technical certifications and more than 1,100 business and technical accreditations. In January 2016 Rackspace appointed Brian Stein as its new head of global engineering. According to Rhodes, the support team is the key to expansion, as it aims to sell its managed services customers more products. The tide of recent events has seen incremental workloads go to AWS, which slowed growth but Rackspace’s new multi-cloud portfolio can “reignite that essential part of our growth engine,” Rhodes said.
Of the AWS customers Rackspace has signed, 70% have chosen Rackspace’s highest service level, Aviator. “This indicates we are adding significant value on top of the AWS infrastructure,” said Rhodes.