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Switch: Tepid Guidance Weighs On Good Results

Gary Alexander profile picture
Gary Alexander


  • Switch beat Wall Street's top-line estimates in its Q4 earnings release, now putting the company at two for two since going public last October.
  • The company's FY18 revenue guidance of $423-$440 million, however, points to only 12-16% y/y growth, versus 19% in FY17.
  • Shares are down 12% in after-hours trading on the news.
  • Switch faces the additional challenge of having its lockup expiration on April 4, putting additional pressure on the shares.

Switch (SWCH) is getting clobbered yet again after an earnings release that, on the face of it, exceeded Wall Street's estimates. Since going public last October, the datacenter colocation service provider has produced good results against consensus expectations, but evidently not good enough to satisfy investors' requirements. This time, Switch's post-earnings pummeling was especially pronounced, with shares falling 12% after-hours:

ChartSWCH data by YCharts

Year to date, Switch has lost more than 20%. After rocketing up in the early days post-IPO (with bulls applauding its high-tech colocation business model and its superior reviews from customers), Switch has largely lost steam and is now down about 15% from its IPO price of $17. Complicating matters further, Switch's lockup expiration comes due on April 4 - meaning that for the first time since the IPO, insiders will be able to sell their shares on the open market, putting much of the company into public float. While the downward performance since IPO lessens the probability that a deluge of sell orders will hit the market on April 4, it creates some downward pressure on Switch that's difficult to recover from - at least through the April timeframe.

Since Switch went public, however, I've never been too enthusiastic on the name. The primary reason for this judgment is valuation-based, not due to a weakness in the company itself. Yes, it's true that Switch provides a cool service - for the unfamiliar, "co-location" is similar to hosting your servers in a third-party cloud infrastructure service like Amazon AWS (AMZN), but it's less full-service in the sense that you're still responsible for maintaining your own hardware. Essentially, you're primarily renting the space and bandwidth from Switch.

The company has built out cutting-edge datacenters that have won it the love of its customers, but is the stock worth

This article was written by

Gary Alexander profile picture
With combined experience of covering technology companies on Wall Street and working in Silicon Valley, and serving as an outside adviser to several seed-round startups, Gary Alexander has exposure to many of the themes shaping the industry today. He has been a regular contributor on Seeking Alpha since 2017. He has been quoted in many web publications and his articles are syndicated to company pages in popular trading apps like Robinhood.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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