Equinix Inc. (EQIX), a provider of data and communication services, reported its quarterly results on July 25, 2012. Since the announcement, the stock has gained almost 13%,and is trading at $181.9, breaking its previous 52-week highs of $179.2. In a previous report on Equinix, we discussed several key business metrics as well as its business model, in light of its recurrent revenues, and came to the conclusion that the company has a bright outlook.
Equinix 2Q2012 results | ||||
Actual | Expected | %Change | ||
Revenues(millions) | $466.3 | $467.1 | -0.17 | |
EPS | $0.73 | $0.6 | 22 | |
According to its recently filed results, the company generated $466.3 million in revenues, which, even though was below analyst expectations for the quarter, was an improvement of almost 20% from the same quarter of the previous year. On a sequential basis, second quarter revenues jumped 3%. Moreover, the massive surge in the stock was perhaps due to the impressive earnings beat. The company reported EPS of $0.73, well above the consensus estimate of $0.6, showing a surprise of almost 22%. This is after a previous quarter earnings surprise of 37%, when the company exceeded earnings expectations.
Equinix 2Q2012 Results | ||||||
2Q2012 | 2Q2011 | %Change | 1Q2012 | %Change | ||
Fig in million | ||||||
Revenues | $466.3 | $394.9 | 18% | $452.2 | 3% | |
Gross Profit | $320 | $257.3 | 24% | $311.6 | 3% | |
Adjusted EBITDA | $222.1 | $181.3 | 23% | $215.2 | 3% | |
Net Income | $36.4 | $30.7 | 19% | $34.5 | 6% | |
North America, the company's largest revenue source, continues to bring in positive results. Revenues from its Americas business surged in the second quarter by 17%, largely due to improved bookings, as well as a strong demand for cloud and digital media services. EQIX's recent acquisition of ALOG data center continues to perform well. Expansion of internet business exchanges is also underway, with an expectation of almost 3,000 more cabinets in the next quarter. The company's operations in its EMEA and Asia-Pacific region showed improvements in the second quarter as well. EQIX received strong bookings from France and Netherlands, which led to a quarterly revenue increase of almost 1.5% for its EMEA division. Asia Pacific revenues showed a strong growth of 6%, largely due to record bookings from U.S. based customers across the cloud and financial segments.
Below is a summary of the company's key business metrics, which have showed improvements QoQ. All metrics grew sequentially as well.
Q2 2012 | Q2 2011 | ||
Cabinet billings | |||
North America | 41,400 | 37,300 | |
EMEA | 24,800 | 22,900 | |
Asia Pacific | 10,900 | 9,300 | |
Utilization rates | |||
North America | 84% | 81% | |
EMEA | 77% | 71% | |
Asia Pacific | 76% | 70% | |
The company is growing rapidly in terms of expansions in its internet business exchange buildup and data centers. The company, through its recently acquired ALOG Brazil data center, is building an internet business exchange center in Rio de Janeiro, which is expected to start operations in the third quarter of the year. Expansion in emerging markets is likely to be particularly profitable for the company going forward.
In a previous piece, we discussed the company's impressive growth in revenues. The recurrent nature of its revenues and the company's defensive characteristics suggest a bright outlook for EQIX, despite the current economic slowdown. EQIX has a history of an impressive revenue growth, and since the financial year ended 2009, its revenues have grown by almost 35%. It has high gross margins, and in the quarter recently ended, it expanded its gross margins to almost 70%, up from Q2 2011. EQIX's bottom line is on an upward trend, which is evident in the latest quarterly results, improving by almost 20% from the previous year's quarter. Moreover, earnings are expected to grow by almost 50% in the current fiscal year.
Apart from the strong results announced by the company, the stock also got a big boost from the management's recent upward guidance. For the third quarter of the year, EQIX is expecting to generate revenues between $492 million and $498 million, above consensus expectations of $485 million. For the full fiscal year, the company is also expecting higher than sell side estimated revenues of $1.92 billion. We believe the company has a strong potential for further growth. Possible changeover to a REIT status will bring in tax benefits for the company, as well as high income in the form of dividends for investors. The stock has performed exceptionally well since the start of the year, up almost 80% on a YTD basis, versus the Telecom ETF (IYZ) being up only 10%. EQIX has a forward P/E multiple of 47x, which looks expensive but is below its historic average P/E of 98x. Considering the high growth nature of its business, the valuations are not that high. Also, P/S (4.4x) and P/B (3.5x) are at a discount to its industry.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
