Cloudy outlook as Rackspace shares plunge on first day of trading

The cloud and server technology company raised $704 million from initial public offering, but investors seem unimpressed with the 'disappointing' IPO.

Anne Morris, Contributing Editor, Light Reading

August 6, 2020

2 Min Read
Cloudy outlook as Rackspace shares plunge on first day of trading

Rackspace shares dropped 22% to $16.39 at the close of trading, after the company raised $704 million in an initial public offering priced at the bottom of the marketed range.

Figure 1: Outlook cloudy: There's little sunshine on the horizon for Rackspace following a 'disappointing' IPO. (Source: Wolfgang Hasselmann on Unsplash) Outlook cloudy: There's little sunshine on the horizon for Rackspace following a "disappointing" IPO.
(Source: Wolfgang Hasselmann on Unsplash)

The shares began trading yesterday on the Nasdaq Global Select Market under the ticker symbol "RXT." The Financial Times described it as a disappointing IPO that contrasted with the rising fortunes of publicly traded cloud businesses.

The US-based company, which leases server space, and helps corporations store and access data in the cloud, set a price of $21 per share for 33.5 million shares.

It had aimed to price the shares at up to $24 each. The total raised amount could increase to $809 million if the underwriters exercise a "greenshoe" option to purchase a further 5 million shares.

The company said it intends to use a portion of the net proceeds to pay off $600 million in debt.

Private lives
Rackspace confirmed in July it was planning to go public again, just four years after reversing its previous IPO – and 12 years after that previous initial public listing.

In 2016, the company went private in a $4.3 billion deal, with investors led by funds affiliated with Apollo Global Management.

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The aim was to gain the freedom to pursue a longer-term strategy without having to answer to shareholders keen for immediate results. It first went public in 2008.

According to the FT, Apollo will hold about 65.1% of Rackspace's voting power following the listing. New investors reportedly include the mutual fund managers BlackRock and Fidelity.

The FT suggested that the company has a total enterprise value of $7.6 billion, including debt of almost $4 billion.

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— Anne Morris, contributing editor, special to Light Reading

About the Author

Anne Morris

Contributing Editor, Light Reading

Anne Morris is a freelance journalist, editor and translator. She has been working in the telecommunications sector since 1996, when she joined the London-based team of Communications Week International as copy editor. Over the years she held the editor position at Total Telecom Online and Total Tele-com Magazine, eventually leaving to go freelance in 2010. Now living in France, she writes for a number of titles and also provides research work for analyst companies.

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