On Mar 28, 2016, shares of Equinix Inc. EQIX hit a 52-week high of $324.97. The stock eventually closed at $323.77, representing a one-year return of 38.2%. The average trading volume for the last three months aggregated approximately 1,109K. The overall long-term expected earnings growth rate for this stock is 17%.
The share price appreciation can be attributed to the company’s aggressive effort of developing data centers across different geographies. Following last year’s initiatives, the company has announced an aggressive expansion plan for 2016. It is targeting an investment of over $4.5 billion for this year in data center openings, expansion of colocation space and acquisitions. The amount includes $3.8 billion for the Telecity acquisition completed this January.
Further, Equinix plans to open four data centers in Tokyo, Dallas, Sao Paulo and Sydney, bringing the total to 150, all by this year.
Equinix recently announced that it has opened its fifth International Business Exchange (IBX) data center – SP3 – in Sao Paulo, Brazil. The new data center, popularly known as SP3, will enable the company to meet growing demand for data center services in the region.
Management remains optimistic on growing demand for data centers, which is attributable to the Big Data exchanges. To meet this demand, the global interconnection and data center company has been expanding its IBX data centers globally and gaining popularity among tech companies that are looking for data management. Thus, the company expects its total addressable market for retail data centers to increase at a CAGR of 8% in the 2013–2017 period and reach $24.0 billion. Based on this projection, the company projects a revenue growth rate of 10% through 2017.
Acquisitions have been another major contributor of growth at Equinix. The company has made several moves to continue expanding its data center capacity in many of its key markets since 2003. In May 2015, the company signed a deal to acquire Telecity Group Plc, a U.K.-based company. The acquisition is likely to help the company expand in Europe by meeting the growing demand for digital services. In Jan 2015, Equinix acquired Nimbo – a leading professional services company primarily focused on enabling enterprises to develop and implement hybrid cloud IT architectures. All these acquisitions made decent contributions toward total revenue growth.
On Feb 18, 2016, the company reported better-than-expected fourth-quarter 2015 revenues. Total revenue for the quarter was $730.5 million, up 14.5% from the year-ago quarter, which beat the Zacks Consensus Estimate of $714 million. The year-over-year growth was mainly driven by strong bookings activity and net positive pricing actions. The company continues to witness strong demand for its cloud services from corporations interested in enhancing their networks.
The company witnessed revenue growth across its three geographic regions and verticals. Robust growth in revenues from global Colocation and Interconnection platforms boosted total revenue.
Anticipating revenue additions from the acquisitions of Telecity and Bit-isle, Equinix also provided encouraging guidance for 2016. The company expects revenues to exceed $3.55 billion, representing a year-over-year increase of more than 13%. The Zacks Consensus Estimate is pegged at $3.56 billion.
The company is focusing on better customer experience through the Equinix Customer One program. Moreover, we are optimistic about the company’s recurring revenue model and current expansion plans.
However, intensifying competition from established Internet data center operators such as AT&T T and CenturyLink Inc. CTL may affect product pricing, thereby contracting Equinix’s margins.
European exposure, highly leveraged balance sheet and industry consolidation further add to the woes.
Equinix currently carries a Zacks Rank #3 (Hold). A better-ranked stock worth considering in the technology sector is Lexmark International Inc. LXK, sporting a Zacks Rank #1 (Strong Buy).
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