According to the law firm press release, the Complaint alleges that during the Class Period, Defendants violated provisions of the Exchange Act by issuing false and misleading statements regarding the impending loss of its contract with Vodafone Group Plc (“Vodafone”) and the attendant impact on the Company’s profitability and growth prospects. Rackspace is a cloud computing company that provides data hosting and other related services to business customers around the world. In August 2010, Rackspace announced that its Vodafone Contract had been renewed for an additional five years.
During the Class Period, Rackspace repeatedly touted the profitability and growth of its international business. However, Defendants’ Class Period statements pertaining to the Company’s profitability and growth prospects were materially false and misleading because Defendants failed to disclose that: (1) Vodafone had initiated extensive data migration away from Rackspace servers, signaling Vodafone’s intent to replace Rackspace with alternative providers on the contract’s April 1, 2015 expiration date; (2) the failure to secure a renewal of the Vodafone Contract would have a significant near-term financial impact on the Company’s 2015 recurring revenues; and (3) as a result of the foregoing, Defendants lacked a reasonable basis for their positive statements about the Company and its growth prospects.
Beginning in May 2015, a series of disclosures exposed the non-renewal of the Vodafone Contract and its concomitant impact on the Company’s financial performance and business prospects. In reaction to these revelations, Rackspace stock lost hundreds of millions of dollars in market capitalization, with the Company’s stock price falling from a Class Period high of nearly $56 per share on April 27, 2015, to close at $29.24 per share on August 11, 2015.