Seeking Alpha
Special situations, long-term horizon, research analyst, long only
Profile| Send Message| ()  

Internap (INAP) will be reporting Q3 2011 results on Thursday, October 27, after the market close.

Historically, the company doesn't issue guidance, and analysts' consensus is for revenues of about $61.7 million, a small increase from Q2, with EPS forecasts ranging from a loss of $0.01 to a profit of $0.01.

If we look at previous quarters, we will notice that 2010 was impacted both by a decline in revenues in the IP services segment, and the effect of a proactive partner data center churn targeted at reducing low or negative-margin revenue. As you may notice from the spreadsheet attached, the effect of this single event impacted Q2 data center revenues in a substantial way (-7,5% Q/Q), while leaving room for some small revenue increase in the second half of 2010, still inferior to the sector's growth rate.

Q2 2011 represented an inflection point for the company, as revenues started growing again, in both segments, IP and Data Center Services.

As Internap's proactive data center churn program is now complete, it may be time to revisit the company's focus going forward.

Last month, Internap Chief Executive Eric Cooney told Reuters:

I am not shopping the company, and we listen to any offers that come in and respond accordingly.

In the same interview, he also added an interesting comment:

Increasingly we will look much more like Rackspace (RAX), Savvis - now part of Centurylink, (CTL) - or Terremark – now a Verizon (VZ) subsidiary - did before they got acquired, in terms of revenue and profitability growth.

We've already talked about how the market reacted to this strange communication, denying being an acquisition target while reminding everybody that the company intends to look very similar to some previous ones.

Throughout the years, Internap has changed its focus several times, moving from a business model strictly based on a “Super Performance IP” offering to being a supplier of data center and IP Services, with strong emphasis on CDN services after the Vitalstream acquisition.

More recently, there are several indications, including the previous CEO comments, that the company intends to strengthen its cloud computing offering, as revealed in a recent Wall Street Transcript interview with Paul Carmody, senior vice president of the company:

In 2009, we began to focus on building our managed hosting offering, which is a rapidly growing segment of our business. And this year, we’re adding a complete private and public cloud services portfolio.

TWST: The company is scheduled to launch comprehensive enterprise cloud service in the third quarter. Please tell us more about this and why it’s important for your customers.

Mr. Carmody: We chose to enter the cloud market with a broader set of cloud offerings than you can find from competitors in the marketplace. For example, some providers have a cloud offering that’s based on VMware, or they might have a cloud offering that’s based on some sort of public, open source hypervisor. Many providers today show a clear affinity toward either VMware or open source. What we’ve chosen to do is to offer both, so we believe we will be one of the only — if not the only — company in the marketplace with a public cloud offering that lets customers choose either VMware or open source, based on the OpenStack management system. We also offer a private cloud spectrum where customers can choose a fully dedicated environment or a virtual data center using VMware. So we actually have two choices on the public side and two choices on the private side, which again supports our strategy of building an IT infrastructure services platform with maximum flexibility and choice for our customers.

Cloud computing is a very attractive proposition, today, not only for the company's customers but also in terms of visibility in the investing community – going back to Mr. Cooney comments, recent acquisitions in the sector were mostly driven by the presence of this kind of offering, and we would not completely rule out Internap as a target for some Telecoms in the future.

We are attaching a brief interactive and downloadable spreadsheet with some of the most important metrics for the company, to allow readers to put Q3 results in prospective and eventually further model these company's data. We've also emphasized some non financial metrics, like the number of partner data centers or customer count to better check the company's developments in these areas.

Source: Internap Earnings Preview