Sunday, February 8, 2009

Equinix 4Q 2008 Earnings Forecast

Equinix (EQIX) will be reporting 4Q 2008 and full year results on February 11 [the same day as Dupont Fabros Technologies (DFT), another Company that operates in the same sector but with a different business model, as they are wholesaling data centers to large corporations].

Consensus is for revenues of $ 190,54 million (with a low estimate at $ 188,60 million, and a high one at $ 191,83 million), and EPS of $ 0,25 (with a large bracket between the analysts estimates, $ 0,17/0,39).

Equinix guidance (mid point) was for revenues of $ 190,1 million and EBITDA of $ 79,6 million (the Company, so far, has never issued an outlook for EPS). As a side note, Equinix has about one third of revenues allocated in currencies different from the US$. Given today's volatile exchange rate market (an example could be the recent fall in value of the British Pound, that represents a good part of Equinix European revenues), it will probably be necessary to examine some numbers on a same currency basis, to get a feeling of Equinix real growth. We do expect the Company to mention, at least for the three main currencies (Euro and Singapore Dollar, British Pound) that represent most of its foreign revenue stream, the exchange rate ratio taken into consideration in its forecast of future results.

Guidance issued for 2009 forecasts revenues of $ 870/892 million, and EBITDA at $ 365/385 million. Capex is foreseen at $325/375 million, comprised of $265/315 million of expansion capital expenditure, that includes about $ 50 million still not allocated (more on this later).

Here is a small chart resuming Equinix revenues and EBITDA for the last few quarters (you may click on the images for a larger view):

While these numbers will be fundamental to evaluate Equinix performance, there are some other metrics that will give a great insight into the Company's performance – let's go through some of them.

Cabinets addition

Equinix has always delivered a steady growth Q/Q, with net cabinet additions ranging from 1,250 to 1,600 in each quarter in 2008 (these numbers exclude the European operations). We do expect this positive trend to continue.

Interconnection business

There is no doubt that the Company is enjoying a great growth in the volume of data going through its centers. This is a chart showing the aggregate numbers for the US IBXs, and relates exclusively to traffic passing through the GigE Exchange (common switch), that represents just a small percentage of the total traffic happening at Equinix (as Companies prefer to use private cross connections in the US, unlike in Europe). Still an effective way to visualize what's happening as far as traffic is concerned (a peak of over 330 Gbps was achieved in January 2009):

This is the link to the real time data.

Getting back to Equinix metrics, it will be interesting to check the number of cross connects and ports on the GigE exchange (and especially 10 Gig ones) added in the quarter. We also hope that some more disclosure on these data will be given for the European operations. As a side note, we noticed, looking at, that some large customers are already showing ports at 20,000 Mbit/sec.

MRR per cabinet (Monthly Recurring Revenue)

Another key metric, although the recent exchange rate fluctuations make this number less effective. These data are for US and Asia only. We just remind you that the average MRR in the US was $ 1,756 in the 3Q 2008, as the US market enjoys, on average, higher rates for colocation and has a higher incidence of interconnection business.

Further expansion

This is a small chart resuming Equinix forecasted expansion in 2009:

If we go back to the last conference call, Equinix CEO mentioned an un-allocated part of the forecasted Capex (transcripts available from Seeking Alpha):

Stephen M. Smith

Turning now to Capex, we expect a total of $325 million to $375 million of which $60 million is for ongoing cap ex. Within this range we have also included approximately $50 million in expansion cap ex to be allocated for additional capacity in key markets.

Our crystal ball forecasts two major markets where Equinix might need to start planning new centers, Silicon Valley and Ashburn (Washington DC metro). While the Company owns a campus in Ashburn, and will probably consider adding capacity within it, it will need to look for a new greenfield building in the Silicon Valley or for the acquisition of a distressed asset in the area.

A brief look at some numbers to support our speculations:

Silicon Valley

  • 2Q 2000 – first center opened (SV1). After the dot-com bubble burst, Equinix was one of the survivors in the industry and started a growth phase also in this very important market:
  • 4Q 2003 – SV2 opening (1st phase) – 800 cabinets
  • 1Q 2005 – SV3 opening – 1,400 cabinets
  • 3Q 2006 – SV4 opening – 1,800 cabinets
  • 2Q 2008 – SV2 opening (2nd phase) – 1,100 cabinets

If the previous numbers represent a trend in capacity needed, Equinix might have the necessity to start planning for a new center. A similar trend could be foreseen for the Washington DC area:


  • 4Q 1999 – first center opened (DC1)
  • 4Q 2000 – second build by Equinix on the Ashburn campus (DC2)
  • 4Q 2004 – acquisition of a previous Exodus data center (DC3) – 1,900 cabinets
  • 1Q 2007 – first greenfield build since the bubble burst (DC4) – 1,700 high power cabinets
  • 2Q 2008 – additional build on the same campus (DC5) – 1,650 high power cabinets

Bond exchange

On the last conference call, it was alluded to the conversion of the 2012 - 2.50% convertible subordinated notes (transcripts available from Seeking Alpha):

Keith D. Taylor

We’ve assumed that the $32.3 million of 2.5% convertible debt will convert in to equity in February, 2009.

Lastly, the Company has a three-year option to purchase the New York (NY4) building for $39,000,000 that expires in September 2009. Although we do not expect this aspect to be mentioned at the conference call, we do take this into consideration when examining Equinix cash flow, as we would probably expect the Company to buy the land as they have strategically done for most locations in the US.

No comments: