Earnings Preview: Equinix Inc.
Equinix Inc. (EQIX) is scheduled to announce its first quarter 2012 results on April 25, 2012 after market close. We see some movement in analysts’ estimates at this point.
Fourth Quarter Overview
Equinix delivered mediocre fourth quarter 2011 earnings of 38 cents a share, falling short of the Zacks Consensus Estimate of 44 cents.
Equinix’ revenues in the reported quarter were $431.3 million, up 24.9% year over year. Revenue growth for the quarter was driven by improved business activity across all its segments, largely driven by the strong demand for the Equinix Platform across all industrial verticals. Market conditions are also improving on the back of better supply-demand dynamics and firm pricing environment.
Cash gross margin for the quarter was 66.7% versus 63.7% in the year-ago quarter. The higher-than-expected results were driven by higher revenues and a lower-than-planned utility cost.
Adjusted net income for the quarter stood at $18.2 million or 38 cents per diluted share versus $13.7 million or 29 cents per share in the year-ago quarter.
First Quarter Outlook
For the first quarter of 2012, Equinix expects revenues to be in the range of $443.0 to $446.0 million. Cash gross margin is expected in the range of 66.0% to 67.0%. Adjusted EBITDA is expected to be between $200.0 and $205.0 million.
For full-year 2012, total revenue is expected to exceed $1.87 billion. Cash gross margin is expected to approximate 66%, while adjusted EBITDA for the year is expected to be greater than $850.0 million.
Agreement of Analysts
Out of the 19 analysts providing estimates for the first quarter of 2012, one analyst revised the estimate downward over the last 30 days, while one revised it upward. Again, for fiscal 2012, four analysts revised their estimates downwards over the last 30 days, and only one moved in the opposite direction.
Moreover, for fiscal 2013, two analysts decreased their estimates over the last 30 days, while three analysts revised it upward during the same period.
Some analysts are of the opinion that the company’s collaboration with Cable & Wireless is a win-win situation, as the latter will use Equinix data centers to serve global enterprise customers to augment their existing cloud capabilities. This will in turn help Equinix to improve its customer base, as the company will have many takers for its cloud computing expertise.
Apart from scheduling a new data center, Equinix also announced its plans to proceed with the second phase of another local data center (DC10). The work on the expansion was accelerated upon sensing the high demand for Equinix's co-location platform in the region. Washington, D.C. serves as the eastern hub of Internet traffic exchange in the U.S., and is therefore an important business area for Equinix.
However, some industry experts believe that the telecommunications industry is currently facing cut throat competetion. Moreover, customers are also combining there businesses, and so they require less co-location space. In addition, increased utilization of existing co-location space could reduce the attractive expansion opportunities available to Equinix.
Magnitude of Estimate Revisions
We have noticed that the Zacks Consensus Estimate for the first quarter has gone down by six cent to 49 cents in the past 90 days. On the other hand, the Zacks Consensus Estimate for fiscal 2012 has declined by 28 cents over the same period. Whereas the Zacks Consensus Estimate for fiscal 2012 has declined by 3 cents over the past 90 days to $3.54.
Recommendation
The company has delivered mediocre fourth quarter 2011 results with EPS falling shy of our expectations. However, the company’s focus on collaboration and good execution are working in its favor, while consolidation in the telecommunication industry may result in less collocation space. We believe that further growth in the client base and strategic acquisitions may result in volume expansion.
Moreover, the company is making a considerable effort to improve its cloud computing capabilities. We are also positive about its recurring revenue model. Despite all the positives, competitive threats from the likes of AT&T Inc. (T) and Verizon Inc. (VZ) makes us cautious. European exposure may also hamper growth going forward.
Equinix carries a Zacks #3 Rank, implying a short-term Hold rating.
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