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Equinix Inc. (NASDAQ: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. (NYSE:T) and Verizon Inc. (NYSE: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.

Source: Equinix: Earnings Preview