) sits at the crossroads of four major tech trends: social media,
mobile, cloud computing and Big Data.
"All that impacts how much digital infrastructure companies
need. And so their demand for services from us is growing each
month," said Charles Meyers, Equinix's president of the
Equinix operates more than 100 data centers around the world,
all offering space, power, cooling and multiple networking
Customers run the gamut from major banks and stock exchanges
to content and cloud computing providers.
And that's not mentioning just about every Internet service
provider you can think of starting withVerizon (
) andAT&T (
) for some 900 in total.
Equinix is the Switzerland of data centers: It's
network-neutral. It doesn't own any networks, but offers
customers a choice of service providers that best suits their
) Web Services puts its network nodes in multiple Equinix data
centers to interconnect with a range of service providers and to
ensure proper performance of mission-critical functions.
"If you buy something from Amazon, that shopping cart
application needs to perform well in speed and reliability,"
Meyers said. "We are where that shopping cart application
Customers at Equinix's data centers, also called co-locations,
can connect or partner with each other, not just for
"These ecosystems are essentially a community of companies
that can do business with one another in and across our data
centers," Meyers said.
If that's not enough, Equinix might also become a Real Estate
Investment Trust, or REIT, which comes with hefty tax
It's not such a stretch. Equinix is, after all, like a
high-tech landlord. Its data centers lease out cabinet space in
high-rise buildings, suburban office centers and warehouse-type
facilities, typically in two- to three-year contracts.
In addition to interconnectivity, "we provide the space and
power for them to house their digital infrastructure," Meyers
Investors seemed thrilled at the REIT prospect. Shares have
soared almost 40% since February, when management announced it
had hired advisers to help evaluate the option.
Some of those gains also have come after two sizzling
quarterly reports. First-quarter revenue jumped 25% over the
year-ago quarter to $452 million while earnings rose 34% to 71
cents a share.
"For the last two years, it's been one of our favorite
(stocks)," said Colby Synesael, an analyst with Cowen &
Now, because a REIT might be part of the equation, "It's a
binary story now," he said. "A lot of (the stock upside) depends
on whether or not it becomes a REIT. It's 90% of the (investment)
If it doesn't? The stock could fall back to its February
trading level of around 130, Synesael has told clients. It's been
trading near 180.
"We think it is likely that Equinix becomes a REIT," Synesael
His opinion is based partly on talks with an independent tax
and accounting expert and a Cowen REIT analyst.
As of the first quarter, Equinix owned only 13 of its data
centers, leasing the rest. But Synesael points out that the IRS
allows "interests in real property" such as leaseholds of land to
be acceptable real estate assets for a REIT.
Synesael notes that some other data-center firms have become
REITs, includingCoreSite Realty (
Equinix is still looking at the technical feasibility of
switching to a REIT, Meyers says. "If we determine that it is
technically feasible, we'll evaluate the desirability of
Equinix doesn't need to rush into a decision. Management has
said that it has $450 million in net operating loss-related
federal tax offsets through 2014.
Even though Equinix generates significant operating cash flow,
free cash flow has been negative while it has been investing
operating profit to expand capacity to support future growth.
The company expects to become free-cash-flow positive in 2013,
even as it continues to expand capacity. If it were to become a
REIT, it could distribute cash back to shareholders.
Some of Equinix's global capacity expansion is coming through
acquisitions. On Tuesday, Equinix closed on a $120 million
acquisition of Germany-based Ancotel, a co-location provider with
a large data-center operation in Frankfurt.
Equinix gained 200 new network providers in the deal.
Despite Europe's woes, Equinix says it continues to enjoy
healthy demand in Europe, where it has a presence in some of the
stronger economies such as Germany.
Revenue generated in euros made up 13% of total revenue in the
Euro depreciation against the dollar could put some pressure
on second-quarter revenue reported in U.S. dollars, analysts say.
Piper Jaffray expects the impact to be 1% or less, however.
Meanwhile, Equinix is expanding in Asia and other emerging
markets. In May, it agreed to buy Hong Kong-based data center
provider Asia Tone for $230.5 million. Once it closes later this
year, the deal will give Equinix six data centers in Singapore,
Hong Kong and Shanghai, the latter heralding its arrival in
"We have generally followed the Internet around the world,"
said Chief Executive Steve Smith during an analyst day conference
on June 20. He said the firm will continue to target emerging
Equinix generated 36% of its revenue in international markets
in the first quarter and expects that number to increase the next
"We'll continue to expand our global reach to where the
traffic patterns are going and where our customers want us to
go," Smith said.
Of the more than 60% of revenue that is generated in the U.S.,
most is from data centers in six metro areas, Meyers says. They
are in Northern Virginia/Washington, D.C., New York/New Jersey,
Chicago, Silicon Valley, Los Angeles and Dallas.
Management hopes to reach $3 billion in revenue by 2015. They
expect revenue to hit at least $1.89 billion this year, up from
$1.6 billion in 2011.
Analysts polled by Thomson Reuters estimate earnings will grow
52% this year to $2.61 a share and rise another 44% next