Rackspace S-1
sec.gov
sec.gov
Wish them luck this time!
https://www.platformonomics.com/2020/02/follow-the-capex-clo...
Read up on some IT chat boards about people's opinions of how Apollo has managed Rackspace before you buy into this IPO IMO.
Private equity has a reputation of splitting up companies, firing tons of people, and then selling the parts to the highest bidder, often while taking advantage of a reputation which is based on social capital the brand built before being acquired.
Some will say this is a good thing since the company was often failing in the first place, but there are plenty of counter examples where the only motivating factor in the move to PE is greed.
Greed isn't always good, even in the context of the boardroom.
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).
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.
Maybe the previous owner should've known better, but they made a conscious decision after evaluating the situation. Maybe the new owner should've acted more responsibly, but they made a conscious decision after evaluating the situation.
Can you say the same for the people who are told they're fired? They made no conscious decision but are the ones who will have to pick up the slack (until such time that a new company arises, if ever). And, funnily enough, the people who are all for private ownership tend not to be the same people advocating for better social safety nets.
If the company was in decline before the purchase, then the end effect could end up being the same. But willfully creating the situation is hardly fuzzy morally.
There is almost no way to affect another person's life by what you choose to do with an apple.
This logic is anathema to some people, who wish that the same stodgy old conglomerates exist in perpetuity like a government agency. But this would be suicidal.
Going back to your apple - the requirements for society to gracefully handle an apple's owner allowing it to rot are nothing. For handling a large company failing gracefully, they are very significant.
A society that is happy to let this happen should recognise this difference and set aside resources to prepare for it - on a scale that recognises the relative difference.
A lot of them end up collapsing under the debt a few years later, plus the heavy cutting of capital expenditure (“capex”) leads to a long term declining revenue as they are no longer investing in new products.
In my experience whether you think that PE is lawful neutral or flat-out lawful evil tends to come down to your opinion on the most brutal forms of capitalism...
We have increased the percentage of our revenue from segments which we believe benefit from attractive growth dynamics. In 2019, over 85% of our revenues came from our Multicloud Services and Apps & Cross Platform segments, which we refer to as our “Core Segments”. In contrast, in the twelve months ended September 30, 2016, less than 10% of our revenue came from our Cloud Office and Managed Cloud Services service offerings.
Basically Rackspace went from being a hosting company with "fanatical support" to someone who manages your AWS account and your cloud apps. They still offer their traditional bare metal servers, and they have their cloud, but that's not where the growth is.
What about boats that are anchored or moored?
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.
Well how else were you going to wash the sides down?
The Covid induced tech euphoria might die down but I am willing to wager that won't be the case. People's habits once changed are very hard to fall back, especially when the new habits have a net positive economic impact. Time saved in commuting, air travel etc. The events industry might totally die down though. So there will be some negative impact as well. Other than these specific verticals such as events and tourism, I bet the market will favour tech innovations now more than ever.
So yeah, this is probably the right time for any tech company to go public, not just those with mediocre metrics.
Are you suggesting Biden will increase corporate taxes? Because if so, I seriously doubt it. Biden agrees with Trump on 70% of the issues if not more.
https://in.news.yahoo.com/joe-bidens-tax-plan-may-wallop-the...
Let's not confuse the issue.
To take perhaps the highest-profile issue when it comes to judges: access to abortion remains federally protected today despite the last 5 Republicans promising to nominate judges to reverse that.
Just this term they made decisions both forcing states to fund religious schools if they find secular private schools and in a separate decision, said that religious institutions have the right to discriminate.
Now we have a condition where my taxes must pay for people who could conceivably discriminate against me.
Abortion isn't the only relevant case that the court could overturn, we have decisions like Citizens United that have essentially gutted the political process for a generation and in the past few days the courts have handed massive wins to Churches and conservatives that allow them to discriminate freely. To pretend the courts don't have massive power to dictate daily life in the US seems to be denying obvious truths.
https://www.cnbc.com/2020/07/04/supreme-court-decision-in-lo...
The policies he's for are what the Conservative Party is for in the UK.
This may have been true the mid 2000s through 2015, but the Conservative Party in the UK is now dominated by the extreme right "European Research Group" (your DPRK comment is apt with regards to them), who are far more aligned with the right of the Republican party of today.
That is the philosophy that Biden represents. My problem is with the American definition of left/right where somebody like Biden/Obama gets called a socialist. That's insane since by international standards they're not even left-wing.
The tide won't lose steam if Biden wins the election. Though there will be carnage similar to the dot com bust. For one, interest rates are super low but will rise sometime soon, when the Fed raises rates at least 3-4%.
The Covid induced tech euphoria might die down and I am willing to wager that will be the case. People's habits once changed may change again, especially when the new habits have a net positive economic impact. Time saved in commuting, air travel etc. The events industry might totally boom though. So there will be some positive impact as well. Other than these specific verticals such as events and tourism, I bet the market will sour on tech innovations now more than ever.
So yeah, this is probably the right time for any tech company to go public, not just those with mediocre metrics.
I was on that ride, and it fucking hurt.
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
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.
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..
If it doesn't make sense it's because it makes dollars...
None of those fit in a pricing page. Maybe as a very dynamic calculator it could work, but it's likely the person looking at the page doesn't even have enough context/info to fill out the calculator.
It’s also a pun: “sense” / “cents”.
If you don't need to automate, then don't automate!
If businesses categorically rejected working with companies that can't provide up-front estimates, they wouldn't be a thing.
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.
There are no easy purchases in an enterprise.
Working with any third party requires an NDA, contract review, and negotiations by our Purchasing department.
I’m not afraid to make a few phone calls, or exchange a few emails, to find out how much something costs. It’s not hard, and it’s my job to do it.
As for your guess that “call for price” businesses are always more expensive than those with pricing pages, from my experience you are wrong. All that matters is the company’s willingness to negotiate with me. In my experience there is essentially no correlation between that and whether they publish a pricing page.
Enterprise purchasing is more similar to a marriage than it is to buying a latté. Even down to having to get internal stakeholder buy-in (akin to "meeting the parents"). Price matters but it doesn't matter nearly as much as being able to navigate the evaluation and procurement process adeptly, so it's worth it for the vendor to filter out tourists, and the right buyers are looking for a longterm partner as well so they're down to do the dance (ie they're not just looking for a fling on Tinder).
This feels like a bunch of sales/marketing bullshit, but it's not - it's just a byproduct of the fact that change management at a big company is hard and people are people (ie are difficult).
I work in product/engineering, and we spend a lot of time thinking about how to tune our product to help enterprise buyers make purchases successfully. It's hard but rewarding. Tiny example, having a product that is flexible enough that you rarely have to say "no we can't do that" in a sales cycle is really powerful.
For better, or for worse, "enterprise" folk are trying to sell "solutions" and not services. This usually works out well for them, because the people who they're selling to don't usually understand the technical minutae, and will often get the details wrong or incomplete.
Let's say you have your eye on a storage array. You know it's going to cost a bundle but it's exactly what you need and want to know how much to budget for buying one. So you call the company who makes it and ask for a price. They tell you, "Sorry, but we don't sell directly to end users, you have to buy our gear through an authorized vendor." So you ask for a list of their vendors. "Sorry, but we don't give out that information. You could try googling our name for some?"
Once you locate a reseller, you call them up and ask them how much it costs to buy the storage array. "I'm sorry, I don't have the pricing in front of me but do you have time on Wednesday for a 1 hour phone call?" You ask, why can't you just give me a price over the phone? "Well, we want to get to know you and we need to make sure that this solution is the one that fits your needs. Plus we can tell you all about the product and answer any questions you might have." Fine, let's schedule a phone call.
Wednesday rolls around and the phone rings. On the line is your "Account Manager" (salescritter), an Integration Engineer (salescritter who can sometimes answer technical questions), the Account Manager's manager, and possibly a trainee for any of the above. Because whenever there's a scheduled phone meeting, it's never just one person on the other end, it's a whole team. "Why don't you start by telling us about the problem you're trying to solve and by the way, all other parts of your infrastructure that we could possibly sell you solutions for?" So you answer their questions, as diplomatically as you can. Once that's done, if you're _lucky_, you will sit through a 30-minute long sales pitch on the product you already fully intend to buy, if the price is right. If you are unlucky, they will try to schedule a follow-up phone call and webex for it.
As the hour-long phone call is clearly starting to wind down, you grit your teeth and ask, hopefully, how much does this thing actually cost? "I can see your a down-to-brass-tacks kind of guy so I'll tell you what, I'll send you a detailed quote sometime early next week, okay? Great!"
_Two weeks_ later, you get the quote. At this point you are so tired of the resller people and their delays and empty platitudes, you just want to get the damn thing on order before your spending window closes. To your surprise, once they actually have the check in hand, they move a lot quicker and ship the unit more or less immediately.
The thing is, if you offer a product in the enterprise space and _don't_ go through this complicated dog-and-pony show for every customer, they won't buy from you because they won't see you as a serious vendor.
I hate it all.
Then we were shocked to find that it would take them two weeks to set up our first machine.
I noped out of it at that point and just paid the penalty to get the hell out of there. A competing service, that we already used, sets up machines in 1-2 days.
When stuff hits the fan and you really need things to happen, two weeks is just a crazy response time. That's like infinity in internet time.
This was about 3 years ago. His company moved everything to AWS.
Pricing laid out up front is more of a consideration for smaller shops which isn’t their target market at all.
Good for them but I am not buying that stock :)
While setting up infrastructure for my current employer I was required to get a quote from them as an existing customer. I expected them to be more expensive than everything else but it was a shock, at the time their IaaS was roughly 4 times the price of any competitor with some extreme limitations such as bandwidth with an expensive per GB rate if you go over. They also recommended dedicated hosting offering to set up an antiquated DB fail over system and claimed to offer 24 hour phone support for a total price I could have hired someone to work as a dedicated sysadmin.
I went with Linode, over provisioning everything for a fraction of the price, I don't expect 24 hour support but stuff gets sorted out quickly when things go wrong on the other side of the hypervisor, Linode are also more transparent in my experience when pushed about issues. With Rackspace they make me feel the way that sleazy salesman that scares you into the extra insurance you get sold with hire cars and then feel like a fool for for afterwards - I can only assume their market is for people who would rather comfort themselves with expensive support than invest in the time to set up a reliable system with a DRP.
... that ended up way more negative than I expected, but, it's just my anecdote.
ISP perspective here: This absolutely has to be intentional. There has been a race to the bottom in pricing for dedicated bare metal x86 servers for close to 20 years now, in the hosting company industry. Very likely they're not going after the market of people who want to pay $165/mo for a server, but some considerably higher amount. A lot of the lower end dedicated server hosters who put prices (anywhere from $39/mo to $200/mo) directly on their website with a shopping cart are not their competition.
g'rackspace pricing' yields: https://www.rackspace.com/calculator
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...
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).
What are other software products / companies with horrible design but get the job done?
Consumer products are like Chipotle: streamlined menu, built for efficiency and elegance. Enterprise products are like the Cheesecake Factory: you want a steak, pasta, pancakes, and a margarita? Go for it! Why is there a full f*ing bar in the back? Who knows!
It's hard to have great design when you have to do so much.
That isn't true for all though, many AWS services seem like they are 'console first' and do wonky shit in the console that is hard to do using APIs. Those services are incredibly frustrating.
Most AWS teams own their own console from what I've read here. And the smaller orgs often don't have any designers - backend engineers build the first iterations of the console.
I agree with your point - If a product solves a real problem, design/usability is a secondary concern. This is particularly dependent on the space, in my experience. In my fintech world, a bank will give you a massive amount of $$$ for a dead-simple form + button if it eliminates a workflow problem. They really could care less if it looks like it's from the 90s (most of their stuff looks that way, anyway).
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.
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.
> 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.
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.
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-...
Can you elaborate on this? How is it rigged exactly?
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?
So they are still growing. And much bigger than I thought. I was expecting Rackspace to be running downhill.
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....
Edit: I found the second part of the interview, where Jason and Matt discuss the acquisition by Rackspace [1].
——————-
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.
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.