Rackspace Security Issue Outage Weighs On Shares For Second Day

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Investors hold a large short position in the shares

Rackspace Technology (NASDAQ:RXT) shares fell for a second session Monday as the cloud computing company sorted out what triggered a security breach at its Hosted Exchange operation.

On Saturday, Rackspace revealed that it proactively shut down the system after finding a security issue. 

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Rackspace said Monday that it "successfully restored email services to thousands of customers on Microsoft 365 and continues to make progress on restoring email service to every affected customer." Shares have lost two thirds of their value over the past 12 months, as the S&P 500 has fallen 11%.  

According to SearchEngineJournal, Rackspace hosted Exchange suffered a catastrophic outage beginning Dec. 2, 2022, and is still ongoing as of 12:37 a.m. December 4. Initially described as connectivity and login issues, the guidance was eventually updated to announce that they were dealing with a security incident. 

The publication posted a tweet from a reader that described the incident.

The first official update was on Dec. 2 at 2:49 a.m.: 

"We are investigating an issue that is affecting our Hosted Exchange environments. More details will be posted as they become available." 

Later the company referred to the situation as a "significant failure" and began offering their customers free Microsoft Exchange Plan 1 licenses on Microsoft 365 as a workaround until they understood the problem and could bring the system back online. 

It's another blow for the shares and a boon for the shorts. And there are a lot of Rackspace shorts. 

According to Fintel data, the shares sport a 78.92 short squeeze score, ranking it 464 out of 5,068 companies screened. 

At the close on Friday, short positions totaled 13.7 million shares out of the company's 211 million outstanding. 

Article by Greg Morcroft, Fintel