October 22, 2009
Equinix Inc.
Another Strong Quarter;
Switch and Data Purchase
Makes Sense
Investment conclusion: Equinix reported a strong 3Q,
which reaffirmed our positive stance towards the data
center space. The company beat on most metrics,
raised guidance for 2009, and guided to at least 20%
revenue growth for 2010. The big news, however, was
the $689M acquisition of Switch and Data. The deal
should be cash flow accretive and provide incremental
capacity in key markets along with scale advantages.
What's new: Equinix reported revenues of $227.6M up
23.9% Y/Y, and well ahead of our $223.3M estimate.
EBITDA of $106.0M was also higher than our $96.6M
estimate on strong pricing and FX benefits coupled with
good cost control. The company raised the mid-point of
2009 revenue guidance by $10M and EBITDA by
$12.5M. We are raising our 2009 revenue from $870.7M
to $879.3M and 2009 EBITDA from $384.3M to $398.4M,
both near the top end of guidance. The company also
announced the purchase of Switch and Data for a
combination of 80% stock and 20% cash. The deal
should close in 1Q10 and would add 16 new markets to
the Equinix footprint in North America. The merger
would increase cabinet capacity 22.3% to 71,200.
Where we differ: We are constructive on the data
center space, as we see favorable secular trends driving
outsourcing and an attractive supply demand imbalance
supporting pricing. Although 3Q results were consistent
with our view on the space as a whole, we rate Equinix
Equal-weight, primarily on valuation concerns. The
stock has been a strong performer this year, and cur-
rently trades at 10.9x our 2010 EBITDA, well above the
peer average of 7.6x. We are also concerned that with
utilization at 81%, Equinix will need to spend heavily on
expansion capex to sustain growth beyond 2010.
What’s next: We will look for more details on Switch
and Data with results on Oct 27, as well as additional
details on synergies