Why Amazon Wants to Invest in the Worst IPO of 2020
Rackspace can’t get the public markets excited, but could help Amazon maintain its dominance in cloud computing
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Rackspace, the cloud services firm that first listed in 2008, and was then taken private by private equity goliath Apollo Global, returned to the public markets earlier this month, only to be received with a collective shrug. Unlike other recent public entrants like Lemonade and Vroom, which doubled on their first days of trading, Rackspace (RXT)’s debut on the Nasdaq saw its shares slump by 22%.
Earlier this week, however, Rackspace’s shares rose as reports surfaced that Amazon is considering scooping up a minority stake in the company.
As Jeff Bezos and Co. look to take advantage of the depressed price of 2020’s worst IPO, it’s worth asking why retail investors have been so uninterested in the company. Here are four reasons Rackspace may have received cool reception amidst so much heat (and one reason why Amazon may want a piece of it).
Missing the hype train
Whether true or not, this IPO season has been defined by one dominant narrative: Buy-happy Robinhood investors are spamming the market with purchase orders for anything with the whiff of high-growth. Among others, that narrative has been used to explain the breakouts of Vroom and Lemonade, two lightly “tech-enabled” IPOs.
If there is an active cohort of investors trading off of buzz, that could explain part of the reason Rackspace stalled out of the gate. Though the company has made an effort to emphasize their technical bona fides by tacking on “Technologies” to the end of their name, “Rackspace” is a moniker that feels old. As the conversation has shifted to the cloud, the very notion of server “racks” sounds outdated. In other words, in a volatile market trading off of hype, Rackspace is unlikely to get the heart racing.
A new focus
More tangibly, investors may have less interest in Rackspace’s new direction.