Rackspace Shares Explode on Talks That Amazon Will Invest in Company

Shares of Rackspace were headed higher this week on a report that e-commerce giant Amazon is in discussions to invest in the cloud services company. The stock closed up over 10% on Monday while soaring as much as 17% during the day. Shares closed up a little over 3% on Tuesday.

According to a Reuters report, Amazon is interested in acquiring a minority stake in Rackspace, which helps companies shift their data to Amazon Web Services. A source familiar with the situation has confirmed that discussions are taking place to CNBC.

After the report in Reuters had been published, Rackspace saw its shares briefly halted due to the volatility on Monday. According to the report, Amazon is interested in acquiring a minority stake in Rackspace, which helps companies shift their data to Amazon Web Services (AWS), along with other cloud services.

It was earlier this month that Rackspace held its IPO. Shares had sank 22% on the company’s first day of trading. “We’re in the middle of a tectonic shift to multicloud technology,” company Chief Executive Kevin Jones told MarketWatch in a Zoom interview on the company’s first trading day. “It is the right place, right time for our transformation. We used to compete with hyper-scalers in cloud like Amazon AMZN and Microsoft MSFT. Now, we partner with them.”

Goldman Sachs & Co. LLC, Citigroup Global Markets Inc., and J.P. Morgan Securities LLC are serving as joint lead book-running managers of the IPO.

Last year, Rackspace reported revenue of $2.44 billion and a loss of $102.3 million, compared with $2.45 billion in revenue and a loss of $470.6 million in 2018.

Rackspace was taken private by Apollo Global Management in a $4.3 billion acquisition in 2016. It is unclear if the companies will all agree to a deal. The report said it could take months for any investment deal with Apollo to work out.

Disclaimer: We have no position in any of the companies mentioned and have not been compensated for this article.