Equinix (EQIX) Thriving on Growth Initiatives: Time to Buy?
We issued an updated research report on Equinix Inc. EQIX on Aug 9. Notably, Equinix posted strong results for the second quarter of 2016 on Aug 3.
The company reported adjusted funds from operations (AFFO) of $4.13 per share, up 7.3% year over year, and surpassed the Zacks Consensus Estimate of $3.16. The improvement was mainly attributable to strong top-line growth, partially offset by higher operating expenses and an increased share count.
AFFO is a non-GAAP financial measure generally used in the Real Estate Investment Trust (REIT) industry. Equinix converted itself into a REIT company effective Jan 1, 2015.
Total revenue was $900.5 million, up 35.3% from the year-ago quarter, which beat the Zacks Consensus Estimate of $894.2 million. The year-over-year improvement was primarily driven by strong booking activity, net positive pricing actions, and the Telecity and Bit-isle acquisitions.
Equinix continues to witness strong demand for its cloud services from corporations interested in enhancing their networks. The company witnessed revenue growth across all three geographic regions and verticals. Robust growth in the global Colocation and Interconnection platforms boosted the top line.
Buoyed by the strong top-line performance in the second quarter, Equinix raised its full-year revenue and AFFO expectations.
Expansion in important markets and consolidation of facilities in the existing ones are an important aspect of Equinix's core growth strategy. The company strives to enhance its revenue base and improve profitability by offering upgraded technology to attract clients. Moreover, a recurring revenue model has provided much needed support to the company's top line over the past several years. The company's cloud and IT service businesses are its fastest growing segments and account for roughly one-fourth of the total revenue.
Further, Equinix remains positive on growing demand for data centers. To meet the growing demand for cloud services, the global interconnection and data center company is expanding its IBX data centers globally and gaining popularity among tech companies looking for data management. Thus, the company expects its total addressable market for retail data centers to increase at a CAGR of 8% from 2013 to 2017 and reach $24.0 billion. Based on this projection, Equinix projects a revenue growth rate of 10% through 2017.
However, Equinix has to compete with established communications carriers such as AT&T T, Level 3 Communications LVLT and Verizon Communications VZ, all of which also operate data centers.
Besides that, the telecommunication industry is currently undergoing consolidation. As customers combine businesses, they may require less colocation space with fewer networks available to choose from. In addition, increased utilization of existing colocation space could reduce the expansion opportunities available to this Zacks Rank #2 (Buy) company.
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