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Equinix: In A Single Metric

May 01, 2020 5:05 PM ETEquinix, Inc. (EQIX)CONE, AMT, DLR, QTS8 Comments
Paolo Gorgo profile picture
Paolo Gorgo


  • Equinix shares have recently reached their 52wk high, in spite of market turbulence. We believe EQIX is benefiting from secular trends, but also unique among data center providers.
  • The purpose of this article is to highlight a single metric investors should focus on when analyzing Equinix. We believe interconnection revenue does represent EQIX's most solid performance signal.
  • We resume our analysis of Equinix business model, competitive positioning and long-term prospects, while also emphasizing why it all comes down to its hard-to-duplicate, interconnection-rich environment.
  • We believe EQIX is widening its moat and that its unique interconnection ecosystem is what separates Equinix from competition.

Equinix (NASDAQ:EQIX) shares have experienced a great run up in the last few years, and have recently reached their 52wk high at over $700.

Equinix 1Y chart on April 29 2020

Chart from Seeking Alpha, edited for clarity

We believe Equinix is benefiting from positive secular trends in the Internet infrastructure sector, but that the company has also unique characteristics that set it apart from other colocation (data center) providers.

The purpose of this article is to resume our analysis of Equinix's business model, competitive positioning and long-term prospects, with strong emphasis on providing investors with a single metric to focus on when analyzing the company's performance.

Having followed EQIX since inception and covered it, here on SA, since 2008, we have witnessed both the company's successful performance (17 years of consecutive quarterly revenue growth) and its management's ability to lead it to an indisputable, worldwide leadership.

IDC data center analysis

IDC Worldwide Colocation and Interconnection Services 2019 - 2020 Vendor Assessment

Cloudscene data center leaderboard

Cloudscene H2, 2019 Data Center Ecosystem Leaderboard Rankings

Reducing a complex balance sheet and business model to a single metric may sound like a risky and criticizable effort.

However, we believe that interconnections represent for EQIX the key differentiator and the signal that may help investors understand the opportunity, both in terms of TAM and margin expansion, that still sits in front of the company.


Equinix was founded in 1998 to help the Internet scale.

Equinix: what

author picture from the 2018 Milan, Italy, Grand Opening

Neutrality has represented the essence of EQIX business model since inception, a strong differentiator from other Telecom data center providers, and the key factor that allowed the company to create a spectacular domino effect.

Interconnection has always been at the very heart of Equinix.

In this chart, we highlight six main steps that resume the company's history and are key to understanding its value proposition, today:

This article was written by

Paolo Gorgo profile picture
Paolo Gorgo' founded Nortia Research to pursue his passion for equity research. Paolo is an Italy-based investor who mostly analyzes distressed debt and turnaround cases. On Seeking Alpha, he started covering the Telecommunications Infrastructure and Colocation Industry, whose turnaround has been impressive - see his article: "Equinix's Journey From IPO To The Nasdaq 100 Through Near Bankruptcy". Paolo's commentary has been quoted both by news organizations like Reuters and listed companies like Equinix, Switch and Data, TelX (Digital Realty), etc. He can be reached at: admin [at] nortiaresearch [dot] com

Analyst’s Disclosure: I am/we are long EQIX. 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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Comments (8)

Great to have you back covering Equinix Paolo. Do you think Equinix can continue long streak of growing both revenue and EBITDA when they report on Weds? I think it is something like 70 consecutive quarters now, which may be a record. You are right, interconnection is the special sauce. Hotel California indeed. Mike
Paolo Gorgo profile picture
I do expect EQIX to continue to improve its track record of 17 years of consecutive quarterly revenue growth.
It's been a very interesting 20+ years trip for the company, with ups and downs - and I'm sure there will be more to write about.
Be safe.
Legend of the Growth Investor profile picture
Paolo, fantastic article. Easily one of the best I've read in equity research for years. Some thoughts on valuation: I would argue this is cheap against its closest comparables. DLR trades at a higher forward price to sales for 2020 and 2021 with much less of a stranglehold on interconnect. I'd say this is the cloud equivalent of the Visa / Mastercard interchange network effect. The virtuous cycle is more data centers, more interconnect, more client capital tied up in each data center.
Paolo Gorgo profile picture
@Legend of the Growth Investor - thanks, appreciated.

I agree with your Visa/Mastercard analogy - it should have been part of the article, also to support the "high multiple" criticism that is often related to EQIX valuation. At least, it got its way in the comment section, thanks.

I've been a DLR shareholder in the past - great company. I just believe Equinix business model, with its retail and interconnection focus, is better.

DLR is a great partner to Equinix, sometimes a competitor (especially after its Interxion acquisition), but I'd stick with Equinix as the best company in the colocation market that, in my opinion, can also offer, over the long term, a better return for investors.
Nate_Z profile picture
Great article. I have Eqix in my IRA. Do you follow the tower reits as well ? Looking at AMT and SBAC
Paolo Gorgo profile picture
Thanks. Not really following tower REITs, I'm sorry. I wouldn't be adding much in terms of diligence to what you probably already know.
monkey_luffy profile picture
Really insightful article. What are your thoughts on valuation though? This is a really expensive stock compared to its peers. What would be a fair value in your opinion? Thanks
Paolo Gorgo profile picture
Thanks for your kind comment.
As to the comparison with peers, the purpose of this article was to highlight that it may be an apples to oranges sort of discussion: Equinix is slightly different from other data center providers, kind of playing in a different league, because of its interconnection rich environment. Higher multiples may be justified just because of this.
Hard to give a fair value to its shares: as I wrote, some stocks that have peculiar characteristics "always look expensive" (think Visa, or other tech companies). It's about what I resumed as "positive secular trends, a high quality business model leading to strong margins and a powerful cash generation, large barriers to entry and a worldwide leadership". A de facto semi-monopoly on interconnection.
In addition, while EQIX is a capital intensive company (a bet on a new data center is in the $100 million range), if you think about the "value" that customers put into its cabinets, it is also leveraging other people's capital. The value sitting inside an EQIX data center is a sum that exceeds (by far) what the company alone invested.
The "Hotel California" business model: customers won't leave, but most likely will ask for more interconnection, space, new locations.
Some color on this from Equinix CFO, Keith Taylor:
>We're trying to be that company that's not a $600 a share company. We're $1,000 a share company. There were $10 billion in revenue [TAM]. That we're creating long-term sustainable value. If we listen to everybody over the years, we would have levered up our business too much. And we would have -- we would've priced our customers out of the business. And our view is its long-term sustainable value creation for the shareholder. And yes, we can give you more margin. And I don't mean you. I mean that, sort of -- but we're very mindful and Charles is good about the discipline investing in the future because we have this opportunity. Yet, at the same time, giving something back to the shareholder. And what we did was made sure that you've got great AFFO per share growth at 9% to 11%. And that doesn't even include the refinancing. So we're doing -- we're investing in the future. We're growing the business in a disciplined way. And we think we're setting ourselves up well with that long-term historically significant company that we want to be part of. And at the same time, create immense value for our shareholders. But we don't live in the short term, we live in the long term, sort of medium to longer-term, because we think that's where investors want us to be, certainly our largest investors.<
Morgan Stanley Technology, Media & Telecom Conference
San Francisco Mar 3, 2020 (transcripts by Sentieo)
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