Singh’s TPG-Axon Capital Management buys a new stake in Equinix

Market Realist

Assessing Dinakar Singh and TPG-Axon’s 4Q13 positions (Part 2 of 7)

(Continued from Part 1)

TPG-Axon Capital Management and Equinix

TPG-Axon Capital Management’s notable positions traded last quarter include new stakes in Equinix Inc. (EQIX), Huntsman Corp. (HUN), Hertz Global Holdings Inc. (HTZ), and Spirit Aerosystems (SPR) as well as sold positions in in Twenty-First Century Fox-A (FOXA) and CONSOL Energy Inc. (CNX).

Dinakar Singh’s TPG-Axon initiated a new position in Equinix Inc. (EQIX), a global interconnection and data center company, that accounts for 6.09% of the fund’s portfolio.

Equinix provides a choice of data center offerings primarily comprised of colocation, interconnection solutions, and managed IT infrastructure services. Its Americas revenues derive primarily from colocation and related interconnection offerings, and  EMEA and Asia-Pacific revenues derive primarily from colocation and managed infrastructure offerings.

Equinix’s latest 4Q results beat analyst estimates, with diluted net income of $45.2 million or $0.88 per share, compared to $45.3 million or $0.83 per share last year. Revenues were $564.7 million for the fourth quarter—a 4% increase over the previous quarter and a 12% increase over the same quarter last year. Revenues for 2013 were $2.15 billion, a 14% increase over 2012, and adjusted EBITDA was over $1 billion, a 13% increase over 2012. Recurring revenues, consisting primarily of colocation, interconnection, and managed services, were $538.1 million for the fourth quarter, a 4% increase over the previous quarter.

The company said fourth quarter results were positive, underpinned by significant growth in cloud and IT services, which grew 16% year-over-year and led all segments in multi-region deployments. Equinix ended 2013 with over 1,200 cloud and IT services customers. Churn for the fourth quarter was 2.3%—down from 2.5% for the previous quarter and consistent with the company’s prior guidance.

For 2014, a significant part of Equinix’s strategy and innovation investment aims at capturing longer-term opportunities associated with cloud computing. Cloud is creating massive disruptions in the IT supply chain at an accelerated pace and will create opportunities across all of the company’s verticals.

Eqix hedge

Equinix said in its earnings release last month that the company has repurchased 0.5 million shares of its common stock under a $500 million share repurchase program authorized in December 2013. The average price was $172.47 per share for total consideration of $92.5 million.

In September 2012, Equinix’s board approved its conversion to a REIT, and the conversion is scheduled to complete in January 2015. In its recent earnings call, Equinix said, “While we’re still awaiting the response from the IRS on our PLR request, we currently do not expect delays in this timeframe.” The stock took a dive in 2Q 2013 after news reports that the Internal Revenue Service was scrutinizing Equinix’s eligibility for REIT status. A REIT conversion is expected to benefit the company since REITs pay lower taxes and higher dividends than other companies. In November, both Equinix and its peer Iron Mountain Inc. (IRM) said the IRS is proceeding to evaluate their eligibility. Equinix believes it’s eligible for REIT status “based on both existing legal precedent and the fact that other data center companies currently operate as REITs.” These include CoreSite Realty (COR), Digital Realty Trust (DLR), and DuPont Fabros Technology (DFT).

To find out about JANA Partners’ investment thesis on Equinix last quarter, see the Market Realist series Must-know: Why did JANA Partners open a position in Equinix?

Continue to Part 3

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