Equinix 2Q 2008 results forecast

First of all, let's have a look at the outlook given by Equinix

>>Business Outlook

For the second quarter of 2008, the Company expects revenues to be in the range of $169.0 to $171.0 million. Cash gross margins are expected to range between 60% and 61% and includes incremental costs from expansion IBX centers opening in the quarter. Cash selling, general and administrative expenses are expected to be approximately $37.0 million. EBITDA for the quarter is expected to be between $65.0 and $68.0 million. Capital expenditures for the second quarter of 2008 are expected to be $100.0 to $110.0 million, comprised of approximately $20.0 million of ongoing capital expenditures and $80.0 to $90.0 million of expansion capital expenditures.

For the full year of 2008, total revenues are expected to be in the range of $685.0 to $700.0 million. Total year cash gross margins are expected to range between 60% and 61%. Cash selling, general and administrative expenses are expected to be approximately $143.0 million. EBITDA for the year is expected to be between $270.0 and $280.0 million. Capital expenditures for 2008 are expected to be in the range of $365.0 to $380.0 million, comprised of approximately $60.0 million of ongoing capital expenditures and $305.0 to $320.0 million of expansion capital expenditures. Expansion capital expenditures are for the announced expansions in the Amsterdam, Frankfurt, Hong Kong, London, Los Angeles, New York, Paris, Silicon Valley, Singapore, Sydney, Tokyo and Washington, D.C. Markets.

In the P/R announcing the 2Q 2008 conference call, Equinix said:

>>The company will discuss second quarter results for the period ended June 30, 2008, and outlook for the third quarter and full year 2008.

This is somehow interesting, as the Company has never mentioned, in the past, giving outlook for the full year, unless they were announcing 1Q results. We speculate there will be an update on full year 2008 forecast. (as a reminder, Equinix had already increased yearly outlook the last c.c.)

Analysts estimates, according to Yahoo:

Earnings Est:

Current Qtr

Avg. Estimate 0.14

No. of Analysts 13

Low Estimate 0.02

High Estimate 0.29

Revenue Est

Current Qtr

Avg. Estimate 169.97M

No. of Analysts 14

Low Estimate 169.10M

High Estimate 170.79M

EPS Trends

Current Qtr

Current Estimate 0.14

7 Days Ago 0.13

EPS Revisions

Current Qtr

Up Last 7 Days 2

As you may notice, two analysts updated recently their forecast for the quarter.

According to a few posts on the Yahoo MB, both Smith Barney and Citigroup are quite positive on the Company getting into the second half of 2008:

>>Smith Barney analyst has revised his 2008, 2009, and 2010 earnings estimates upward

>>Citigroup Global Markets analyst says his newest analysis shows potential for upside revenue guidance from the company for 2008. His target price remains at $120/sh.

>>Asia Offers Upside to 2Q Consensus and Guidance - We are raising our near-term operating forecasts to reflect incremental strength, principally from Asia, based on our revised bottoms-up revenue analysis, supporting upside potential to FY08 revenue guidance and the '09 revenue consensus. Our 2Q revenue forecast increases to $170.8 mil., while our bottoms-up revenue analysis still implies further upside potential to our forecast by up to another $1.6 million.
Expect Strong Demand to Be Emphasized in NYC Metro, DC & London - We expect favorable demand trends to be emphasized on its 2Q call set for 7/23, as we expect EQIX to remain bullish on trends in DC; formally announce the build out of Secaucus phase II, which is already built into our capex forecasts, with the possibility of Phase I being sold-out before the new expansion comes on-line; and strong demand in London, which may facilitate another expansion.
European Bookings Remain Well Ahead of Billing - We are encouraged on the potential upside from its European portfolio contribution as booking levels were at 87% exiting 4Q, while we believe revenue billings as of 1Q were only around 53%, and we believe both demand and pricing trends remain favorable.
Reit. Buy on EQIX - We recommend Buying EQIX with a target price of $120 on the recent pull-back, as our revised bottoms-up revenue analysis suggests room for further upside potential to our upwardly revised forecasts that are above FY08 revenue guidance and consensus 2008 - 2010.

Let's have a look at the expansions forecasted for 2008:

SV2 (phase 2) expansion due to open Mid 2Q 2008 + 1,100 cabinets

DC5 expansion due to open end 2Q 2008 + 1,650 cabinets

TY2 (phase 3) expansion due to open April 2008 (+ 400 cabinets? speculation)

Paris 2 (phase 3) expansion due to open 2Q 2008 + 1,000 cabinets

Amsterdam 1 opening due mid 2008 + 1,120 cabinets

Frankfurt 2 (phase 2b) expansion due to open beginning 3Q 2008 + 840 cabinets

HK1 (phase 2) expansion due to open 3Q 2008 + 550 cabinets

London 4 (phase 3) expansion due to open 3Q 2008 + 1,600 cabinets

SG1 (phase 3) expansion due to open 4Q 2008 + 300 cabinets

SY2 expansion due to open 4Q 2008 + 650 cabinets

Resuming: 4,150 cabinets (the number includes 400 cabinets in Tokyo, our speculation) should have been added in the 2Q 2008, 1,120 cabinets will be added once Amsterdam is open, 2,990 cabinets will be added in the 3Q 2008, and 950 cabinets in the last quarter (total for all regions).

Equinix opened the 1Q 2008 with a saleable capacity of 30,100 cabinets in the USA and Asia, and closed the 1Q with 30,300 cabinets (with approximately 23,500 cabinets or about 78% of saleable cabinets billing, and 1,500 cabinets billing added in the quarter) At the end of the 2Q 2008, the total number for USA and Asia should jump to 33,450 cabinets saleable, giving the Company more room, in strategic markets, for further expansion. Europe too will benefit from added cabinets.

Our research and channel checks seem to indicate strong demand for the Company, so that we will not be surprised to hear that the high end of expectation for the quarter (revenues of $ 171 million) has been reached or exceeded, and that the high end of expectations for 2008 ($ 700 million) becomes the mid target for Equinix in 2008.

We do also expect an announcement for the build out of the second phase of Secaucus, with the first phase sold out well ahead of expectations. Confirmation on the opening of Amsterdam with some numbers on bookings / expectations from this market.

Most new European and Asian expansions are fully booked, so, unless there is a slow down by some customers, because of the weak economy, forcing them to re-negotiate the space booked, we believe that, with the strong track record of execution by the Company, results should be very good in these regions. Also looking forward to more clarity on Europe (number of cabinets available and billing, average rental per cabinet/month, increase in cross connects, margins, etc.).

Paolo Gorgo'