Earnings Preview: Equinix Inc. - Analyst Blog
October 25 2011 - 10:00AM
Zacks
Equinix Inc.
(EQIX) is scheduled to announce its third quarter 2011 results on
October 26, 2011, after the market closes. We see a few upward
revisions in analyst estimates at this point.
Second Quarter
Overview
Equinix delivered an impressive
second quarter, strongly beating the Zacks Consensus Estimate by
36.2% with respect to earnings per share. The quarter’s results saw
an improvement from loss per share of 5 cents in the year-ago
quarter. The improvement could be credited to solid revenue
growth.
Equinix’ second quarter revenue
increased 33.0% from the year-ago period on strong demand across
international markets, interconnection growth, significant pickup
in cross-connects, exchange ports and traffic on switches, as well
as strong contribution from the newly acquired ALOG data
centers.
Solid market fundamentals such as
the growth of IP, mobile, video, cloud and electronic trading
combined with the company’s global leadership position will likely
drive profitability over the long term.
Third Quarter
Outlook
The company expects revenues in the
range of $412.0 to $417.0 million. Cash gross margin is expected to
be approximately 65.0%. Cash selling, general and administrative
expenses are projected at approximately $86.0 million. Adjusted
EBITDA is expected to be between $180.0 million and $185.0 million.
Capital expenditures are estimated at between $160.0 million and
$180.0 million, comprising approximately $30.0 million in ongoing
capital expenditures and $130.0 million to $150.0 million in
expansion capital expenditures.
Agreement of
Analysts
Out of the 17 and 18 analysts
providing estimates for the third quarter and fiscal 2011, 1 and 2
analysts have raised estimates, respectively, in the past 30 days.
Moreover, two analysts raised their estimates for fiscal 2012.
The analysts have high hopes for
strong contribution from ALOG data centers yet again. They are also
positive about Equinix’ impressive data center footprint and robust
network density, which have attracted customers for a long time.
However, in the absence of specific catalysts that could drive
further upside, most analysts have left their estimates
unchanged.
Magnitude of Estimate
Revisions
We noticed that the Zacks Consensus
Estimate for the third quarter has gone down a penny and 6 cents to
44 cents in the past 30 and 90 days, respectively. On the other
hand, the Zacks Consensus Estimate for fiscal 2011 has improved by
7 cents and 10 cents to $2.18 in the same time period,
respectively. The Zacks Consensus Estimate for fiscal 2012 dropped
26 cents over the past ninety days to $2.89.
The reason for the decrease could
be lower expected EBITDA margin due to higher operating expenses
and lower churns.
Recommendation
Equinix is expanding its current
facilities and client-base, and is also exercising fiscal
discipline. The new data centers were kicked off successfully,
especially in Europe, and made a hefty contribution to overall 2010
revenue growth. We believe that the company has a decent line-up of
new data centers for 2011. We are also optimistic about its
recurring revenue model and current expansion plans.
Though stiff competition from
networking aces like AT&T Inc. (T) and
Verizon Inc. (VZ) and the company’s European
exposure are concerns, we believe that the increasing demand trend
and new product launch (Marketplace, which is a new service for the
benefit of data center users) will boost revenue growth.
Currently, Equinix has a Zacks #1
Rank, implying a short-term Strong Buy recommendation.
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