Thursday, July 29, 2010

Equinix Revenue Per Cabinet Up 8% Y/Y in North America

Wall Street loved Equinix's (EQIX) earnings report, with the stock closing up 6.5% today, even though it came in at expected revenue and EBITDA levels, and the company only lifted EBITDA guidance by a fraction.

The company's year-over-year revenue growth, excluding Switch & Data, was 21%, down from 25% last quarter. In addition to expansion, this continued revenue growth was helped by monthly recurring revenues per cabinet climbing to $2,053 in North America, up 8% from $1,893 a year ago. Overall revenue growth per cabinet was held back by the Euro falling during the quarter, but this is an important element of what the company claims is a 30-40% 5 year IRR on its investment in the IBX centers.

The company has over $2 billion of debt, but with adjusted EBITDA margins in the low 40s, it is not facing any major liquidity issues. With a debt/equity ratio over 1, the company is essentially borrowing away to build capacity beyond what any competitor will ever likely reach, while keeping its cost of capital down. And with not only revenue growing, but revenue per cabinet increasing, it is hard to argue against this strategy. However, it will be interesting to see what happens with Telx, which does just 1/10th the revenue Equinix does now, but leases its facilities instead of buying them. As a result, it has a Revenue/PP&E ratio of 1.5, compared to .6 for Equinix. The trade-off is that Telx's EBITDA margins are about 20 points lower, but could improve once that provider grows. Either way, the limited space in key markets like Northern New Jersey and Northern Virginia is helping both providers right now.

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