Equinix Earnings Preview For Q2/2010

This is a guest post by Paolo Gorgò, who blogs over at Nortia Research.  Anyone else who might be interested in a guest post may contact the webmaster.

Equinix (NASDAQ:EQIX, news, filings)  will report earnings tonight.

This quarter will also include Switch and Data revenues (from May 1^st), and the conference call will represent an interesting update on the integration efforts (and planned future developments) of the combined Company, the dominant US neutral colo player.

Analysts expect revenues of $ 295.9 million, on average, and earnings of $ 0.24.

We are a bit more pessimistic, and believe that Equinix will probably report below the low range of its updated guidance ($296 to $ 298 million), due to currency exchange fluctuations.

Both the Euro and the Pound have been quite weak against the US$ in the quarter, and the FX impact (the former stand alone Equinix had about 20% of revenues in these two currencies alone) might put a shadow on what we believe was instead another strong performance in Europe and Asia.

Here is a quick summary of our forecast:

As you may notice from our numbers, we believe Equinix will experience another quarter of limited (due to FX fluctuation) organic growth, although we remain much more bullish for the second half of the year, when we believe the Company will be back to 5% plus organic growth Q/Q. Here is a more detailed sheet of our forecast:

During the call, we expect an update from Equinix about the sales synergies that the merger with Switch and Data might produce in the second half of the year, in particular in the New York metro market, where the Company inherited a huge potential (the former Switch and Data Bergen data center), and improved its presence in key peering points in Manhattan.

While several competitors are starting adding capacity, we still believe that Equinix will enjoy a strong competitive advantage for the next two years at least, and will keep its disciplined growth trajectory in strategic markets. Robust demand still outpaces supply, and pricing remains strong.

Contract length is slowly increasing, and the visibility into the business (with more than 90% recurring revenues) should guarantee a solid performance going forward. The combined company, excluding further expansions, may already reach revenues of more than $ 1.8 billion.

Equinix expects synergies from the acquisition that might represent cost savings of about 10% for the former Switch and Data. The Company experienced a similar situation at the time of the IX Europe integration, and has already succeeded in improving adjusted EBITDA margins, as you may notice from these old data, leveraging the strength of its business model:

We do expect that Equinix will succeed improving this metric, both organically and for the combined Company, and expect it to range over 50% in the long term.

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Categories: Datacenter · Financials