Monday, January 3, 2011

Data Center Stocks Drop 4.35% in the 4th Quarter

By David Gross

Data Center Stocks fell just over 4% in the 4th quarter, with our Services Index falling from 100.0 to 95.35.  However, it was all because of the Equinix warning in early October.    The index fell to 88.95 at the opening bell October 6th, and rose 7.53% for the rest of the quarter.

The REITs had a weak quarter, with DuPont Fabros, Digital Realty, and CoreSite all dropping between 15% and 17%.   Some of this is attributable to rising Treasury yields, which reduced the spread between risk-free government bonds, and data center REIT dividend yields.   30 year Treasury yields rose from 3.7% to 4.36% during the quarter, and when this happens, dividend investors often demand higher returns due to the added risk of a REIT over a Treasury Bond.   Interestingly, the leading apartment and office REITs did not take much of a hit during the quarter.  However, the big difference between those stocks and the data center REITs is that the data centers were raising rents during the recession, while the apartments and offices were not.   Now the apartment and office owners, including Avalon Bay and Boston Properties, are benefiting from expectations that their pricing power will improve.

Managed services and hybrid managed-colo providers had a good quarter, with Terremark advancing 25%, and leading all stocks in our index.   Rackspace and Savvis were also up over 20%.    Internap also had a strong quarter, rising 24%, while no one else with a CDN presence had a particularly good quarter.  Akamai and Limelight were down, and Level 3 bobbed up and down with all the Netflix news, but finished in the delisting zone at 98 cents a share. Services Index

Company Ticker Mkt Cap Dec 31 Close Oct 1 Open Quarterly Chg
Equinix EQIX $3,704,643,400 81.26 102.35 -20.61%
Digital Realty DLR $4,499,442,000 51.54 61.70 -16.47%
DuPont Fabros DFT $1,259,822,100 21.27 25.15 -15.43%
Rackspace RAX $3,925,307,700 31.41 25.98 20.90%
Savvis SVVS $1,409,724,800 25.52 21.08 21.06%
Level 3 LVLT $1,626,800,000 0.98 0.94 4.59%
Akamai AKAM $8,544,750,500 47.05 50.18 -6.24%
Navisite NAVI $139,792,800 3.71 3.34 11.08%
Terremark TMRK $850,944,500 12.95 10.34 25.24%
Limelight LLNW $571,471,600 5.81 5.89 -1.36%
AboveNet ABVT $1,471,438,200 58.46 52.09 12.23%
CoreSite COR $233,380,400 13.64 16.39 -16.78%
Internap INAP $315,612,800 6.08 4.90 24.08%

Index Value October 1
Index Value December 31

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