By David Gross
At its investor day yesterday, Savvis reaffirmed its annual guidance of $1.03 billion to $1.06 billion of revenue, and Adjusted EBITDA of $265 million to $290 million. Wall Street was expecting $1.05 billion and $270 million.
The stock was one of the best performers among data center and hosting providers between July and the end of October, and has nearly doubled over the last five months. But it has fallen $1.54 over the last two days to $26.26 on heavy volume, after it was announced that one of its largest shareholders, Welsh, Carson, Anderson & Stowe, had cut its stake in the company a third to 10.3 million shares.
Savvis is one of those companies where I don't think EBITDA tells you a good story about its prospects. It is still net income and free cash flow negative due to high capex requirements. And its capex produces less revenue per dollar invested than rival Rackspace, whose Revenue/PP&E is approximately 50% higher, because it does not have to spread itself over such a wide product line. Savvis did the right thing selling its CDN to Level 3. At some point, it will need to re-examine why it's still in the bandwidth business.