The year 2011 was, on average, a tough year for stocks. The U.S. market performed relatively well compared to most emerging and developed markets, in spite of the S&P index closing basically flat for the year.
Just as a quick comparison, the DAX (Germany) closed 2011 with a 15% loss, and the FTSE 100 on the London stock exchange ended the year down 6.6%. Both the DOW (+5.5%) and the Nasdaq (-1.8%) performances appear solid compared to such numbers, which were not the worst among European stock markets.
Data center-related stocks delivered a solid performance, on average, in 2011. Almost half of the companies under our coverage that were still listed at year end gained 25% or more. Before analyzing December 2011 and full year results for each individual stock, it may also be worth remembering that three data center-related stocks were acquired during 2011, delivering gains of about 50% to shareholders who eventually bought these companies at the end of last year:
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A quick look at their performance in December 2011:
Internap (INAP) was the best performer in the month, closely followed by Akamai (AKAM), that positively benefited from its acquisition of Cotendo, announced on December 22.
REITs delivered the most solid performance as a sector, with gains in the month ranging from Digital Realty's (DLR) 5% to Dupont Fabros Technology's (DFT) 7.5%.
All network neutral colocation providers were also in the green, with TeleCityGroup, the European data center provider, scoring the best performance; a 6% gain in December alone.
A quick look at full year results shows a relatively healthy picture, with a few peculiarities:
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With the exception of the CDN sector, 21Vianet (VNET), the Chinese data center supplier that IPOed at a very healthy valuation during the year, and Internap, only marginally negative (-2.3%), all data center related stocks were in the green in 2011. As anticipated, most of them delivered solid double-digit results.
Both Akamai and Limelight Network (LLNW) suffered big losses during the year, mainly due to concerns about the sector's decreasing growth rates and margins going forward. Akamai's recent acquisition move may have represented a turning point, at least for that specific company. As the Wall Street Journal noted, not very often a $268 million buyout is welcomed by the stock market with a $1 billion positive gain in market cap for the acquirer.
Rackspace (RAX) delivered solid quarterly results during the year, and is benefiting from its strong cloud computing offering that remains one of the major investing themes on Wall Street. Its 37% performance is among the strongest in the sector.
All REITs delivered a solid performance, ranging from 14% (Dupont Fabros) to roughly 30% for both CoreSite (COR) and Digital Realty. As a reminder, this performance doesn't include dividends paid throughout the year.
The winner for 2011 among data center-related stocks, however, is TeleCityGroup (TLCTF.PK), ending the year with a 37.5%. The U.K.-based data center provider acquired a competitor, the Dublin-based Data Electronics Group Limited, in the second half of 2011, and announced at the end of the year its intention to start a progressive dividend policy in 2012.
This decision is a strong testament to the high operating margins and relatively low maintenance CapEx requirements of network neutral colocation players. It comes at a time that the company is still experiencing strong demand and heavily investing in new facilities. We wouldn't be surprised to see TeleCityGroup's competitors following a similar route in 2012 or beyond, as the company reaches a high discretionary cash flow level and may start considering which may be the best options to increase shareholder value.
Disclosure: I am long EQIX.
