Equinix: The Biggest Fish in the Pond

I've had a limit buy order out for Equinix (EQIX) for many months now; the price I was seeking now looking foolish. Talk about a perfect chart.


We talked about this sector, and stock in particular in July [Jul 29, 2009: Guest Post - Colocation Stocks and Industry Overview] and the stocks were expensive then, and have only become more so. Equinix reported earnings, and announced an agreement to buy out one of the other names cited in that story - Switch & Data Facilities (SDXC). SDXC is up a cool 29%.

Yet another industry being consolidated by the biggest fish in the pond...

First let's touch on the deal

• Equinix (EQIX) said it agreed to buy Switch & Data Facilities Co. (SDXC) for $689 million in cash and stock. Equinix said the deal with strengthen its position in the data center services market, adding 16 new markets across North America. The deal will add 34 data centers in 22 markets in U.S, and Canada, with more than 1 million gross feet of added data center capacity.
• Terms call for SXDC holders to choose to receive either 0.19409 shares of EQIX common stock or $19.06 in cash for each Switch & Data share. The overall consideration will be 80% in EQIX common and 20% in cash.

Equinix results for the quarter

• Third-quarter net income rose to $18.8 million, or 47 cents a share, from $5.6 million, or 15 cents a share, a year earlier. Revenue rose 24 percent to $227.6 million.
• Analysts expected earnings of 30 cents a share, excluding exceptional items, on revenue of $224.1 million.
• For 2009, Equinix now expects total revenue of $875 million to $880 million. In July, it had forecast revenue of $860 million to $875 million.

Full report here

No position... still

Comments

[Paul Harper:]

is a great area, I am looking hard at companies related to cloud computing. Rackspace seems to be one that gets a good rep from telco insiders.

Oct 23 08:45 AM

[mcover:]

In my opinion this is the biggest SHORT in the pond. Absurd valuation, debt growth is faster than revenue growth. They only grow if they spend aggressively - ie add new servers, storage and space. Their margins are without question unsustainably high (in fact there are competitors who price 20% below EQIX). No major barriers to entry. It reminds me of the Level III business model and we all (or at least most of us) remember how that story ended (-95%). Now they are buying one of their largest competitors, Switch and Data. Oh, and did I mention that gross margins for SDXC are 1500 basis points lower than EQIX and EBITDA margins 1200 basis points lower. So what happens to pro forma mgns when you put the two companies together? They go down! Does EQIX under-depreciate their equipment costs - sure looks like it. Yes, I am short the stock


On Oct 23 08:45 AM Paul Harper wrote:

> is a great area, I am looking hard at companies related to cloud
> computing. Rackspace seems to be one that gets a good rep from telco
> insiders.

Oct 23 04:46 PM

[TraderMark:]

It's very pricey - hence why I was trying to buy it MUCH lower ...

then again AMZN is 60x earnings so hey we are back to the 1999 again

Oct 23 04:57 PM

[woop:]

Talking about valuation, this (1211.hk) is what Buffet bought back in Oct 2008 (and said to add shares recently) over here in HK, PE 150+...

Oct 24 01:36 PM