Rackspace Technology 2025 Q1 Earnings Narrowed Losses Amid Revenue Decline

Rackspace Technology (RXT) reported its fiscal 2025 Q1 earnings on May 12th, 2025. The company exceeded expectations in certain areas, narrowing its losses significantly compared to the previous year. However, revenue fell short, indicating a 3.7% decline from the prior year. Despite this, the company provided guidance in line with expectations, projecting revenue between $653 million and $665 million for Q2 2025. CEO Amar Maletira expressed optimism about future growth, citing strategic partnerships and an increase in bookings.

Revenue

Rackspace Technology's total revenue for Q1 2025 decreased by 3.7% to $665.40 million, down from $690.80 million in Q1 2024. The Public Cloud segment generated $415.60 million, while the Private Cloud segment contributed $249.80 million, bringing the total consolidated revenue to $665.40 million. This decline highlights ongoing challenges within the company.

Earnings/Net Income

Rackspace Technology significantly narrowed its net loss to $71.50 million in Q1 2025 from a loss of $640.60 million in Q1 2024, marking an 88.8% improvement. The company also reduced its loss per share to $0.31, compared to a loss of $2.91 per share in the same quarter last year. This improvement in EPS suggests positive progress in financial performance.

Price Action

Post-Earnings Price Action Review

The strategy of purchasing Rackspace Technology shares following a revenue drop on earnings release dates has consistently underperformed the market. A five-year backtest of this approach shows a return of -35.96%, significantly less than the 8% return of the US market during the same period. The decline in Rackspace's stock price post-earnings can be attributed to several factors, including revenue declines, decreased profit margins, and uncertain market conditions. In Q1 2025, Rackspace experienced a 4% year-over-year revenue decline, with a notable 7% drop in private cloud revenue. Additionally, the non-GAAP gross profit margin decreased by 1.5 percentage points, mainly due to challenges in the private cloud segment. Market sentiment remains cautious due to macroeconomic uncertainties, potentially affecting customer decision cycles and deal onboarding timelines. Consequently, the strategy of buying Rackspace shares after earnings releases has not yielded positive returns, largely due to the company's financial challenges and broader market conditions.

CEO Commentary

Amar Maletira, CEO of Rackspace Technology, highlighted that the company exceeded expectations in Q1 2025, achieving revenue at the high end of guidance and surpassing profit and EPS forecasts. He noted a 9% year-over-year growth in bookings, driven by a 13% increase in The Americas. Maletira emphasized the operational turnaround and growth in pipeline across business units, along with a strategic partnership with Rubrik to enhance cyber resiliency. Despite macroeconomic uncertainties potentially impacting customer decision cycles, he expressed optimism about long-term trends in Private Cloud and AI, asserting confidence in their strategic priorities and execution.

Guidance

Rackspace Technology expects Q2 2025 GAAP revenue in the range of $653 million to $665 million, reflecting a 4% year-over-year decline at the midpoint. The company anticipates Private Cloud revenue between $247 million and $253 million and Public Cloud revenue ranging from $406 million to $412 million. Non-GAAP operating profit is projected to be between $25 million and $27 million, with a non-GAAP loss per share estimated at $0.04 to $0.06.

Additional News

In recent weeks, Rackspace Technology has made notable strides outside its earnings performance. On April 30, 2025, the company announced a strategic partnership with Rubrik to launch the Cyber Recovery Cloud, a fully-managed solution designed to enhance cyber resiliency for organizations. This collaboration is expected to drive revenue growth starting in 2025. Additionally, Rackspace launched the OpenStack Flex on April 10, 2025, which provides enterprise-grade, on-demand cloud services, simplifying hybrid cloud management for clients. On March 25, 2025, Rackspace introduced its Rackspace AI business, aimed at optimizing enterprise AI workloads, furthering its commitment to innovation in AI and cloud solutions. These initiatives reflect Rackspace's focus on expanding its service offerings and entering high-growth markets.