
Rackspace S-1 - jonbaer
https://www.sec.gov/Archives/edgar/data/1810019/000119312520190902/d915709ds1.htm
======
Hongwei
For those who don't remember, here's what happened last time:
[https://www.thestreet.com/technology/rackspace-ipo-starts-
ou...](https://www.thestreet.com/technology/rackspace-ipo-starts-out-
reeling-10432556)

Wish them luck this time!

~~~
newguy1234
I wouldn't buy into this IPO. The problem is rackspace doesn't really have
much of a moat and the space is highly competitive.

~~~
psds2
The space has a moat though - it takes a huge investment and long time to
become competitive in this low margin space. Rackspace has shown themselves to
be a market leader within this moat.

~~~
discodave
Their capex looks to be ~$2-300MM. That's approximately 1% of what AWS spends.

[https://www.platformonomics.com/2020/02/follow-the-capex-
clo...](https://www.platformonomics.com/2020/02/follow-the-capex-cloud-table-
stakes-2019-edition/)

------
humaniania
"Rackspace became public in 2008, and in 2016 was purchased and taken private
by Apollo Global Management LLC."
[https://en.wikipedia.org/wiki/Rackspace](https://en.wikipedia.org/wiki/Rackspace)

Read up on some IT chat boards about people's opinions of how Apollo has
managed Rackspace before you buy into this IPO IMO.

~~~
devalgo
The same as any LBO most likely. They gutted the company and now want to cash
out on the public markets. Private Equity is disgusting.

~~~
burrows
Why is private equity bad?

~~~
seibelj
If you believe in private ownership of property, then it should extend from an
apple to a $100 billion corporation. Someone owns it, they own it. I’ve yet to
hear a cogent argument that logically explains the line below which private
property is fine, and above which owning something is immoral, other than some
fuzzy “it feels like $50mil is too much”. I want to know logically the exact
metric where some amount of wealth crosses into evil world.

So if you agree private ownership is not the devil, then nothing stops a
private group from acquiring a majority stake in a company and running it the
way they see fit. And if what they want to do is to fire everyone skilled and
run it into the ground - so what? If the need is still there, a new company
will arise. If they were too bloated, then cost cutting is good. And if they
just middle along doing poorly, then they can’t spin it back out to the public
markets and earn a huge pay day (unless the public markets are irrationally
exuberant from free money printed by the government, but this is a 2020
phenomena).

~~~
devalgo
This is an over simplification and no one here is saying private ownership is
bad. It would be mind boggling if someone were allowed to buy your home with a
mortgage in your name, kick you out of it and then sell the home for pure
profit. Yet that is exactly what LBO's do. They buy companies using debt which
they then transfer to that company, sell off anything of value, fire most of
the workers, show some level of profit and sell the company to someone else.

~~~
seibelj
But the house is privately owned by me. The company is public, anyone can buy,
and if they have enough of it (or enough of the elected board representation),
then they can do that.

If I was a shareholder in a company that underperformed the market, and a
professional turnaround firm decided to take drastic action to improve the
value of my ownership stake, I would approve.

My preference is to work for and invest in companies that try to make me the
most money possible. I donate to non-profits that try hardest to improve the
world. For-profit companies and non-profit organizations have different goals.

------
neom
A rising tide lifts all boats. Maybe a decent time for a capex heavy business
with mediocre metrics to go public?

~~~
shuntress
_A rising tide lifts all boats._

What about boats that are anchored or moored?

~~~
shuntress
Not that anyone will see this but regarding this comment's siblings:

It seems like you don't understand the metaphor unless you each mean to imply
that The Economy goes through frequent regular cycles of significant expansion
and contraction where every expansion reaches a consistent, predictable high
point before contraction brings it back down to a consistent predictable low
point.

But it can still accurately represent the people who are "left behind" in the
economy. You cannot just say "Ah yes, the tide is going up. Therefor everyone
is safe and dry in their boats as they rise with the tide" as an excuse to
ignore people who need help.

------
ffsgdyfhfjvds
Wow. I thought they learned their lesson with the _last_ mid-recession IPO.

I was on that ride, and it fucking hurt.

~~~
oillio
Judging by the stock market performance, this is a perfect time to IPO.

It may end in tears like a 2000 IPO, but tech is so hot right now. For
example, look at recent public offerings like DKNG and NKLA

~~~
newguy1234
It isn't like 2000 though. These tech IPOs are real companies, with real
products, real customers and real businesses. The 2000s had companies going
public that were just based on an IDEA. Literally...."we're raising funds in
this IPO to build xyz website/service."

Most tech IPOs these days have at the very least already been vetted through
venture capital funding rounds. The weak simply don't get funded at an early
stage.

------
usaphp
The fact that in 2020 you have to fill in a contact form to get a quote for a
server price is ridiculous...I just browsed their site and could not find a
single mention of pricing without providing them with my full contact
information

~~~
staysaasy
They're very enterprise focused, so you might not be the target customer? (I
don't want to presume, however)

For a lot of powerful but heavyweight enterprise products, giving people
access to pricing isn't worth it because it can cause some buyers to opt out
of the process earlier than they would if their hands were held. Especially if
the integration process will require some element of digital/IT transformation
and hence internal political wrangling. There's tech for smooth onboarding in
2020, but not necessarily tech for helping you to do stakeholder alignment in
a sales context.

The engineer in me finds this painful and wants to scream inside, but
empirically this does work..

~~~
JMTQp8lwXL
Why do enterprises even initiate conversations with third parties if they
won't immediately give you a price? Just move on to someone who will. If your
options are $10,000 or <price unknown> its obvious option #2 will be more.

If businesses categorically rejected working with companies that can't provide
up-front estimates, they wouldn't be a thing.

~~~
evrydayhustling
For enterprise deals, the _price_ is often a small part of the overall cost of
ownership.

The defining element of enterprise deals is complication: large companies
don't tend to buy the product as advertised. They need the vendor to make lots
of adjustments and carry out extra processes to deploy (or else those costs
fall back on the buyer). So, until the buyer's requirements have been
explored, there's not a useful estimate to be had.

~~~
tjalfi
This.

There are no easy purchases in an enterprise.

Working with any third party requires an NDA, contract review, and
negotiations by our Purchasing department.

------
bogomipz
So Rackspace(RAX) went public in August 2008 and then when they could no
longer compete against AWS and Google in the cloud provider space they spent
years seeking someone to acquire them, which Apollo Global Management did in
2016 for $32.00 a share and took them private[1]. They then laid off a
substantial portion of their workforce and decided to become an IT shop to
provide support for customers who are using the cloud providers that put them
out of business. And now their re-listing for $12.00 a share?

Why would anybody buy this? What is the play here? Is Apollo somehow making
out here?

[1] [https://www.rackspace.com/newsroom/affiliates-of-funds-
affil...](https://www.rackspace.com/newsroom/affiliates-of-funds-affiliated-
with-apollo-global-management-private-company)

~~~
Scoundreller
It may not be the same number of shares.

------
leetrout
I’m conflicted. On one hand Rackspace used to have some great offerings and
tech chops and then (wisely?) became a cloud intermediary.

Is AWS professional services for a company that has went through the
transition Rackspace has worth a $100m IPO? (Assuming I read the S-1
correctly).

~~~
czbond
I am only familiar with Rackspace of about 10 years ago. Beyond the marketing
speak, what is their competitive advantage? Are they doing AWS prof serv?

~~~
rorykoehler
They do AWS professional services since last year (I think) but we mainly use
them for support as AWS doesn't cater for companies our size with their
pricing.

~~~
ericcholis
GCP, AWS and Azure now as well. They still have a bunch of on-metal, physical,
and cloud customers as well.

~~~
leetrout
Ah I didn’t realize that.

------
itsdevlin
I really hope that part of their use of funds is to hire a design team.

~~~
greghausheer
Just goes to show how a functional product even with bad design can do well.

What are other software products / companies with horrible design but get the
job done?

~~~
quest88
I would say Craigslist because it's not pretty but I can't say that an ugly UI
is the same as a horrible design. The design has worked well so far for many
types of people.

~~~
bhurlow
would put Scalyr in that category

------
marketgod
They purchased Onico and Onico is one of the best vendors for Devops support.

When a company is being spun out by a private equity, I am always hesitant to
invest in it. I prefer when a company goes to market with their original
investment thesis because you never know if the private equity is harming one
of their other companies to grow another one.

I.e. Rackspace and Onico are owned by the same subsidiary, suppose Rackspace
charges Onico an extra 20% compared to what they are already paying because
Onico doesn't plan to go public, however, the extra 20% Rackspace gets looks
better and causes a better return on their investment. At the same time, the
subsidiary has an incentive to inflate their stock price and not be a bag
holder.

------
otoburb
Notice how Rackspace's 2019 revenue hit a hard ceiling in 2019 (pre-COVID).

Also, capital expenditures in 2017, 2018 and 2019 were 9%, 14%, and 9% of
yearly revenues, respectively. If they hadn't tamped down on their 2019
"capital intensity", and assuming a more normal capex spend of 11.5% (split
the difference between 2018 and 2019 for incremental 3.5% capex spend or
~$70M+), their EOY2019 cash & cash equivalents would have been down to a mere
$14M (instead of $84M) -- looks like a cash crunch, mainly due to the 2019
Onico acquisition for $316M.

------
m3kw9
Is it right to say they are basically IT consultants

------
linuxftw
How much of Rackspace is even left? Is this just a cash grab by the company
that took them private?

> As of March 31, 2020, we had $3,987.5 million face value of outstanding
> indebtedness

It's always a mystery to me how some firm can buy a company, and then push the
debt from acquiring the company onto the company itself.

This is just vampire capitalism. Unfortunately, it makes no difference if
individual investors here choose to invest, "index funds" will use everyone's
retirement savings to funnel more cash to these parasites.

~~~
blamarvt
> Is this just a cash grab by the company that took them private?

Absolutely. My uninformed ex-Rackspace-employee take is that Apollo Global
Management just wants to raise more money to further run the company into the
ground.

~~~
linuxftw
Rackspace's last quarterly statement (I believe) showed a Net Profit of $35.8M
[1].

Compare this to their most recently quarterly numbers in the S-1:

> For the three months ended March 31, 2020, we had revenue of $652.7 million,
> a net loss of $48.2 million

Yeah, they grew revenue by around 20% over 5 years, but there was an $84M
swing into the red!

You'd have to have a hole in your head to trust these crooks. Unfortunately,
most of us have no choice, the 401k market is rigged.

1: [https://www.investing.com/equities/rackspace-hosting-
income-...](https://www.investing.com/equities/rackspace-hosting-income-
statement)

~~~
bogomipz
>"Unfortunately, most of us have no choice, the 401k market is rigged."

Can you elaborate on this? How is it rigged exactly?

~~~
linuxftw
Sure. Once a stock is listed on a major exchange, those stocks make their way
into various index funds. 401ks most typically offer a very limited selection
of funds there's no way for an individual to choose to own funds that exclude
a particular company.

It's rigged in the sense that the banks know the stock is worthless, but if
you grease the right palms, you get to IPO, and the money you receive from the
IPO is not investors that believe in your company, it's the fund managers that
are managing other people's money, and they don't care about fundamentals or
sound investing. It's the political class siphoning money from the working
class. Do you think Warren Buffet is going to participate in this IPO?

------
ksec
They have $2.4B Revenue in 2019! Seems to be doing great in the HyperScaler
Era. They have managed to increase their revenue despite market competition.

So they are still growing. And much bigger than I thought. I was expecting
Rackspace to be running downhill.

------
mot2ba
I felt sad about their acquisitions and strategies. They had SliceHost - a big
player in very beginning of Cloud, they had a solid background in Hosting
Provider, but they just give them all and knees AWS.

~~~
simonebrunozzi
I know the founder of Slicehost quite well, Jason Seats. Smart guy. Here's an
old interview from these days, by none other than DHH [0].

I was at AWS in these years - I thought that Rackspace had a good chance of
becoming a serious competitor in the cloud space, and Slicehost was a smart
acquisition.

AWS then executed flawlessly. Rackspace, well, picked one of the worst
possible strategies to chase the cloud opportunity.

Furthermore, Openstack was a giant mistake, IMHO. Execs thought that people
wanted multi-cloud and private clouds. I met with literally 1,000 customers
per year, and almost none of them wanted these things.

[0]: [https://signalvnoise.com/posts/2974-the-slicehost-
story#:~:t...](https://signalvnoise.com/posts/2974-the-slicehost-
story#:~:text=David%20Heinemeier%20Hansson%20chats%20with,.com%2Ffounderstories%2Fslicehost).

Edit: I found the second part of the interview, where Jason and Matt discuss
the acquisition by Rackspace [1].

[1]:
[https://vimeo.com/groups/99803/videos/26333537](https://vimeo.com/groups/99803/videos/26333537)

------
_bxg1
Perceptually, I think Rackspace was the first modern cloud provider that I'd
ever heard of. Is that accurate? Were they early on the trend? Or did their
name just advertise the concept really well?

------
konschubert
EDIT: Nevermind, they seem to habe stopped caring about hosting and now
provide support for AWS. Sounds a lot like consulting.

——————-

At some point, innovation of the software slack on top of bare metal will slow
down and the tooling will become commoditized.

IF, and that’s a big if, the best-in-class bare metal remains available for
indiscriminate purchase, competitors may start to commoditize the cloud - AWS
will need to start to fight a price war.

But those are two big question marks and even then, if any company can fight a
price war then it’s Amazon.

So I wouldn’t bet on rackspace here.

For the time being, they may be able to serve those enterprises competitively
that just want some bare metal - but once AWS and GCP roll our proprietary ARM
chips, they may not be able to keep up any more.

~~~
8organicbits
When did the change to consulting happen?

~~~
konschubert
Last year, according to the other comments in this thread.

------
bluedino
Are they just hoping to grow as AWS grows? Not sure why anyone would choose
Rackspace these days.

~~~
EE84M3i
Rackspace isn't exclusively tied to AWS. They have other operations too.

------
whatsmyusername
I will never do business with Rackspace again after they hell they put me
through.

When your entire security posture falls apart when one minimum wage call
center employee gets bamboozled you should not be in business. Fuck that
company.

