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Rackspace Sells Cloud Sites Business to Liquid Web

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Rackspace reported its second quarter fiscal 2016 earnings on August 8, on the same day it announced the sale of its Cloud Sites business unit to Liquid Web.

For the quarter, Rackspace reported revenue of $524 million, for a 7 percent year-over-year gain. Net income was reported at $36 million, up from Rackspace$28.3 million in the second quarter of 2015.

Looking forward, Rackspace provided third quarter guidance for revenue to range between $510 million and $515 million.

Just ahead of the call, Rackspace announced the sale of its Cloud Sites business unit to Liquid Web, which is a Platform-as-a-Service (PaaS) product in the company’s larger cloud portfolio. Financial terms of the deal were not publicly disclosed.

“This is a non-core business, and by selling it we gain more focus,” Taylor Rhodes, CEO of Rackspace, said during his company’s earnings call.

Rhodes noted that the Cloud Sites business runs several hundred thousand websites for customers today, but would have required substantial investment moving forward to remain competitive.

“What we’ve been able to do is find a strategic buyer in Liquid Web, who will buy the company at a higher multiple than it was producing for us and allow us both to focus on our portfolios,” Rhodes said.

Liquid Web’s Plans for Cloud Sites

Liquid Web CEO Jim Geiger commented in a blog post that his company sees great potential in the Cloud Sites platform and the people who have fanatically served its customers over the years.

“We want to build on this and invest in developing innovative solutions on the Cloud Sites platform to better serve these savvy, skilled professionals who are reliant on a highly available and dependable hosting provider,” Geiger said. “This means only upside for the designers, developers, and digital agencies currently using the Cloud Sites platform as well as future customers.”

For Rackspace the focus is now on its core cloud offerings, which includes Amazon Web Services (AWS) support that was first announced in October 2015.

Rhodes said that from the October launch through the end of July, Rackspace has signed up 277 customers for its AWS service. He added that Rackspace’s AWS customers are roughly balanced between existing Rackspace customers and the ones that are new to the company.

One question Rhodes was asked during the earnings call was whether or not the AWS support was eating into Rackspace’s OpenStack cloud business.

“The cannibalization effect is not showing up as a material driver,” Rhodes said. “Could it in the future? It could.”

Sean Michael Kerner is a senior editor at ServerWatch and Follow him on Twitter @TechJournalist

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