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Rackspace says cloud skills shortage holds back rivals

Rackspace Q3 saw net revenue for the third quarter of 2015 of $509m, up 10.7% from the third quarter of 2014, adversely affected by shifts in currency exchange rates. On a constant currency basis, net revenue grew 12.9% from the third quarter of 2014.

Adjusted EBITDA for the third quarter of 2015 was $177m, for a margin of 34.9%, up 11.9% from the third quarter of 2014. For the full year, Rackspace continues to expect revenue to grow between 12% and 14% year-over-year, on a constant-currency basis, and expects adjusted EBITDA margins to be between 33% and 34%.

"We're proud of the financial results that we delivered in the third quarter," said Taylor Rhodes, president and CEO of Rackspace. "And we're excited about the new products and partnerships that we've launched in recent months, with Amazon Web Services, Intel and Microsoft. These initiatives will make us more competitive and will drive our growth for the future."

The business is consolidating, he says as telcos and other smaller dedicated or managed hosting providers are exiting because of the pressure from AWS primarily and Azure etc. “There could be some plays out there that allow us to go take our market leadership as the largest pure play managed hosting provider and buy up some of those assets, get them into our more efficient and profitable model, and make a good run of that.”

“One of the things we've watched very carefully this year as we were preparing to launch our Azure and our AWS strategies was who is already doing it and how are they doing. And we watched relatively small companies with probably Datapipe being the largest in that ecosystem really starting to grow well, get high multiples, and perform well, because frankly there's a big skills gap in the market. Companies who are trying to get the clouds do not have the knowledge and they often can't go hire people who understand the fast-changing technologies of the cloud. So what we're seeing is small players who lack scale and who don't have anything particularly special of doing well in this space because of that demand for companies to get to the cloud.”

“We bring scale that is much larger. We bring a heritage of cloud operations. We've got Fanatical Support. Those are good leading indicators of our opportunity there.”

“And on the higher end, you can see companies like HP Enterprise, the HPE that just split out, they're exiting OpenStack public cloud and talking about providing services to their customers across AWS, Azure, and private cloud. So it sounds very similar. And I think that's a natural move for them in their sort of Fortune 500-Fortune 1000 installed base because that's where their customers will push them. But I think it remains to be seen how they'll do there and there's a lot of change going on in that company.”