Rackspace Technology Inc

Rackspace Technology Inc (NASDAQ: RXT) is an end-to-end multi cloud technology services company. It designs, builds, and operates its customers' cloud environments across all technology platforms, irrespective of technology stack or deployment model. It operates in three reportable segments Multicloud Services; Apps & Cross-Platform; and OpenStack Public Cloud. The company's solutions include Application Services; Data; Colocation; Managed Cloud; Managed Hosting; Professional Services; and Security & Compliance.

Key highlights

• Strong revenues in FY 2021: In FY 2021, the company's sales climbed 11% to USD 3,010 million, up from USD 2,707 million in pcp. While core revenue increased by 14% to USD 2,827 million in the same period, compared to USD 2,478 million in pcp. New client additions and increased customer expenditure in the Multicloud Services and Apps & Cross Platform sectors boosted revenue. Revenue grew by 10% in 2021 compared to 2020 in constant currency terms.

Source: Company Presentation

• Dramatic Cash Flow Turnaround in 2021: Net cash provided by operations grew by USD 254 million, or 218 percent, to USD 371 million in fiscal 2021, from USD 117 million in fiscal 2020. This rise was principally driven by a USD 413 million increase in cash collections, owing to higher revenue levels and a greater emphasis on collection activities with many significant clients, as well as receiving prepayments to a lesser degree. Furthermore, the company's free cash flow increased to USD 262 million in the reported period, up from USD 0.2 million in the previous period.

Source: Company Presentation

• Slight decline in bookings: The company’s booking in FY 2021 stood at USD 1,031 million, declined 8% compared to USD 1,126 million in pcp. The decline in bookings from 2020 to 2021 is the result of the company’s focus in 2021, on growing revenue and profitability with the new customers onboarded in 2019 and 2020.

Stock recommendation

Some of the positive highlights in FY 2021 include double-digit Core Revenue growth and record revenue with a more than three-fold increase in cash flow from operations. However, it could not sustain that growth and reported operating loss of USD 2.5 million and net loss of USD 218.3 million. In addition, the company's bookings fell by 8%, which might be an indication of concern.

Nevertheless, the company continues to acquire new customers and also aim to deepen relationships with these customers through high margin services bookings. In addition, it is investing in measures to boost sales productivity, which is a significant plus. Hence, given the above fact, we recommend a “Watch” rating at the last closing price of USD 11.77 on April04. 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on April 04, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary

Investors can evaluate the stock based on the support and resistance levels provided in the report in case of keen interest taking into consideration the risk-reward scenario.