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.
Showing posts with label SVVS. Show all posts
Showing posts with label SVVS. Show all posts
Thursday, December 9, 2010
Sunday, October 10, 2010
Ashburn Data Centers
By David Gross
In Northern Virginia, many of our telecom carriers went bankrupt in the early-mid 2000s. The region spent much of the last decade shifting its emphasis from being a leading hub for ISPs and CLECs, back to its more traditional role in government contracting. However, data centers held on due to the unusually large amount of fiber optic capacity and interconnection points that already existed in the region, and centered in on one area - Ashburn - for their large expansions.
Ashburn sits in the middle of rapidly growing Loudoun County, a few miles to the north of Dulles Airport. Anyone who has visited the Equinix (EQIX), Digital Realty (DLR), or DuPont Fabros (DFT) facilities there has seen the planes, including many European flag carriers, flying right over the data center clusters on Beaumeade Circle/Filigree Court and Devin Shafron Drive.
The first major facility to go up in Ashburn was Equinix's DC1 in 1999. When it was built, many thought it was too far out, and that it might have been better off closer to the large MAE East NAP in Tyson's Corner, 15 miles east, which along with MAE West in Silicon Valley passed more Internet traffic than just about any location in the world. And with interconnection the centerpiece of the co-location business, proximity to both fiber and existing peering locations were highly important. But land costs are much lower in Ashburn, as are existing building densities, two factors which have made it conducive to large, 100,000+ square foot facilities, while the smaller data centers have tended to stay to the east in Fairfax County and downtown DC.
Today, there is just over 2 million square feet of public data center space in the Ashburn area, including the Savvis-operated/DLR-owned facilities a couple miles away on Ridgetop Circle and Nokes Boulevard, which have a Sterling address. Those facilities are adjacent to the Dulles Town Center mall, which itself was built in 1999, and are surrounded by shopping centers, and new apartment and townhouse developments. Meanwhile, the Ashburn clusters tend to be slightly more rural, sitting west of Route 28, which runs right into the Dulles Airport entrance, and used to mark the end of civilization for many DC area residents.
The primary hub for data centers in Ashburn is a collection of interconnected roads - Beaumeade Circle, Hastings Drive, Chillum Place, and Filigree Court, which are less than a mile down Loudoun County Parkway from the Washington Redskins training facility. The large former WorldCom/now Verizon Business office complex is another mile down Loudoun County Parkway. And if you continue another half mile down that road, you come to the DLR cluster at Devin Shafron Drive.
On Devin Shafron, there is a small patch of dirt and grass with a Digital Realty "for lease" sign in front, while nearby on Red Rum Drive, office REIT First Potomac Realty (FPO) recently bought the Corporate Campus at Ashburn Center, 123,000 feet of which are leased to managed hosting provider Latisys, which held a grand opening there last Thursday. Among the established properties, Equinix's DC2 has long been the place to be, with a long list of financial, media, and telecom clients including MasterCard, The Motley Fool, Level 3, Internap, Electronic Arts, BT North America, and Accenture. Around the corner from there on Hastings Drive, DC-based DFT has attracted its own set of brand name clients with Rackspace, Facebook, Yahoo, and Match.com.
This tenant mix in Ashburn reflects that this is the leading east coast data center hub, bringing together some of the largest telecom providers and most highly visited websites in the world. In the 2010s, Ashburn is carrying on Northern Virginia's 1990s legacy as the hub of ISPs and internet connectivity.
In Northern Virginia, many of our telecom carriers went bankrupt in the early-mid 2000s. The region spent much of the last decade shifting its emphasis from being a leading hub for ISPs and CLECs, back to its more traditional role in government contracting. However, data centers held on due to the unusually large amount of fiber optic capacity and interconnection points that already existed in the region, and centered in on one area - Ashburn - for their large expansions.
Ashburn sits in the middle of rapidly growing Loudoun County, a few miles to the north of Dulles Airport. Anyone who has visited the Equinix (EQIX), Digital Realty (DLR), or DuPont Fabros (DFT) facilities there has seen the planes, including many European flag carriers, flying right over the data center clusters on Beaumeade Circle/Filigree Court and Devin Shafron Drive.
The first major facility to go up in Ashburn was Equinix's DC1 in 1999. When it was built, many thought it was too far out, and that it might have been better off closer to the large MAE East NAP in Tyson's Corner, 15 miles east, which along with MAE West in Silicon Valley passed more Internet traffic than just about any location in the world. And with interconnection the centerpiece of the co-location business, proximity to both fiber and existing peering locations were highly important. But land costs are much lower in Ashburn, as are existing building densities, two factors which have made it conducive to large, 100,000+ square foot facilities, while the smaller data centers have tended to stay to the east in Fairfax County and downtown DC.
Today, there is just over 2 million square feet of public data center space in the Ashburn area, including the Savvis-operated/DLR-owned facilities a couple miles away on Ridgetop Circle and Nokes Boulevard, which have a Sterling address. Those facilities are adjacent to the Dulles Town Center mall, which itself was built in 1999, and are surrounded by shopping centers, and new apartment and townhouse developments. Meanwhile, the Ashburn clusters tend to be slightly more rural, sitting west of Route 28, which runs right into the Dulles Airport entrance, and used to mark the end of civilization for many DC area residents.
The primary hub for data centers in Ashburn is a collection of interconnected roads - Beaumeade Circle, Hastings Drive, Chillum Place, and Filigree Court, which are less than a mile down Loudoun County Parkway from the Washington Redskins training facility. The large former WorldCom/now Verizon Business office complex is another mile down Loudoun County Parkway. And if you continue another half mile down that road, you come to the DLR cluster at Devin Shafron Drive.
 |
| DLR's new data center at 43915 Devin Shafron Drive |
On Devin Shafron, there is a small patch of dirt and grass with a Digital Realty "for lease" sign in front, while nearby on Red Rum Drive, office REIT First Potomac Realty (FPO) recently bought the Corporate Campus at Ashburn Center, 123,000 feet of which are leased to managed hosting provider Latisys, which held a grand opening there last Thursday. Among the established properties, Equinix's DC2 has long been the place to be, with a long list of financial, media, and telecom clients including MasterCard, The Motley Fool, Level 3, Internap, Electronic Arts, BT North America, and Accenture. Around the corner from there on Hastings Drive, DC-based DFT has attracted its own set of brand name clients with Rackspace, Facebook, Yahoo, and Match.com.
This tenant mix in Ashburn reflects that this is the leading east coast data center hub, bringing together some of the largest telecom providers and most highly visited websites in the world. In the 2010s, Ashburn is carrying on Northern Virginia's 1990s legacy as the hub of ISPs and internet connectivity.
| Ashburn Data Centers | |||
| Rentable Sq Ft | Tenants | ||
| DFT | ACC2 44490 Chillum Place | 53,000 | Yahoo |
| ACC3 Hastings Drive | 80,000 | ||
| ACC4 44480 Hastings Drive | 172,000 | Rackspace, Yahoo, Match.com., Facebook | |
| ACC5 Phase 1 | 86,000 | ||
| ACC5 Phase 2 | 86,000 | ||
| 477,000 | |||
| DLR | 21561/21571 Beaumeade Circle | 164,453 | AT&T |
| 43881 Devin Shafron Drive | 180,000 | FAA | |
| 43791 Devin Shafron Drive | 132,086 | Morgan Stanley | |
| 43831 Devin Shafron Drive | 180,000 | Amazon.com | |
| 43915 Devin Shafron Drive | 132,000 | ||
| 21110 Ridgetop Circle, Sterling | 135,513 | Savvis | |
| 45901/45845 Nokes Boulevard, Sterling | 167,160 | Savvis | |
| 44470 Chillum Place | 95,440 | Equinix (DC3) | |
| 1,186,652 | |||
| EQIX | 44470 Chillum Place | Leased from DLR | DC3 |
| 21715 Filigree Court | 147,600 | DC2 | |
| 21701 Filigree Court | 92,000 | DC5 | |
| 21711 Filigree Court | 43,000 | DC1 | |
| 21721 Filigree Ct. | 148,000 | DC6 | |
| 21691 Filigree Court | 100,000 | DC4 | |
| 530,600 | |||
| First Potomac Realty | |||
| 21635 Red Rum Drive | 123,000 | Latisys | |
| Total | 2,317,252 |
Thursday, October 7, 2010
Volatile Data Center Stocks are Good for Data Center Businesses
By David Gross
As it was losing nearly a third of its value yesterday, Equinix (EQIX) saw 30 million of its shares change hands, representing nearly 70% of its float, and 40 times its normal volume. 3.1 million of these shares traded on Direct Edge, whose primary data center is Equinix's NY4, which is just across the Hudson from Wall Street in Secaucus. Many investors are familiar with retail analysts who walk around malls to see how busy the stores are. What if those investors could see where their Equinix trades were being executed?
Now it's not clear why Citrix (CTXS) should have dropped 14% because Equinix guided revenue down by 2%, but in the selling panic, nearly 18 million shares of Citrix stock traded hands. Normally 3 million do. F5 (FFIV) saw 7.6 million shares move compared to 1.6 million on a typical day. Savvis (SVVS), which reaffirmed guidance for a quarter that's already ended, lost 10% of its value, and saw 5 million shares trade hands vs. 320,000 on an average day. And with all the noise out there still ringing in your ears about a co-lo company starting with "E", I won't mention their name again in this post.
There were some days last quarter when these stocks were being bid up for no good reason where they did 2-4x normal volumes. Savvis, for example, saw nearly 600,000 shares move on September 24th when it was up over a dollar. F5 traded 5.5 million shares on July 22nd when it was up nearly 15% for the day. Citrix was up nearly 20% on July 29th when 14 million shares of the company traded.
These sharp moves - up and down - reflect a manic psychology in many of these names, which is not uncommon for a sector that's getting a lot of attention. But the financial strength of many data center providers depends on financial trades. Savvis, for example, gets nearly 30% of its revenue from financial services, much of which is trades and market data to support those trades. So data centers should continue to do well as long as investors keep having selling panics, irrational love affairs with certain stocks, and keep building more algos. A wave of rational buy-and-hold investors is the last thing this industry needs.
As it was losing nearly a third of its value yesterday, Equinix (EQIX) saw 30 million of its shares change hands, representing nearly 70% of its float, and 40 times its normal volume. 3.1 million of these shares traded on Direct Edge, whose primary data center is Equinix's NY4, which is just across the Hudson from Wall Street in Secaucus. Many investors are familiar with retail analysts who walk around malls to see how busy the stores are. What if those investors could see where their Equinix trades were being executed?
Now it's not clear why Citrix (CTXS) should have dropped 14% because Equinix guided revenue down by 2%, but in the selling panic, nearly 18 million shares of Citrix stock traded hands. Normally 3 million do. F5 (FFIV) saw 7.6 million shares move compared to 1.6 million on a typical day. Savvis (SVVS), which reaffirmed guidance for a quarter that's already ended, lost 10% of its value, and saw 5 million shares trade hands vs. 320,000 on an average day. And with all the noise out there still ringing in your ears about a co-lo company starting with "E", I won't mention their name again in this post.
There were some days last quarter when these stocks were being bid up for no good reason where they did 2-4x normal volumes. Savvis, for example, saw nearly 600,000 shares move on September 24th when it was up over a dollar. F5 traded 5.5 million shares on July 22nd when it was up nearly 15% for the day. Citrix was up nearly 20% on July 29th when 14 million shares of the company traded.
These sharp moves - up and down - reflect a manic psychology in many of these names, which is not uncommon for a sector that's getting a lot of attention. But the financial strength of many data center providers depends on financial trades. Savvis, for example, gets nearly 30% of its revenue from financial services, much of which is trades and market data to support those trades. So data centers should continue to do well as long as investors keep having selling panics, irrational love affairs with certain stocks, and keep building more algos. A wave of rational buy-and-hold investors is the last thing this industry needs.
Wednesday, September 29, 2010
Savvis Best Performing Data Center Services Stock This Quarter
With two trading days left in the quarter, Savvis (SVVS) leads data center stocks with a 45.07% gain since July 1, outpacing runner up Rackspace (RAX) by nearly three points. Terremark (TMRK), Equinix (EQIX), and Navisite (NAVI) are all up over 25% for the quarter.
Among data center networkers, F5 (FFIV) leads the pack, up 51% for the quarter, well ahead of the 2.58% gain posted by Cisco (CSCO). If you include companies whose products connect data center to data centers, Riverbed (RVBD) leads everyone, up over 66% for the quarter.
Among data center networkers, F5 (FFIV) leads the pack, up 51% for the quarter, well ahead of the 2.58% gain posted by Cisco (CSCO). If you include companies whose products connect data center to data centers, Riverbed (RVBD) leads everyone, up over 66% for the quarter.
Monday, September 27, 2010
Rackspace, Equinix, Akamai, Savvis, Limelight All Near 52-Week Highs
Data center stocks have had a very strong quarter, with Rackspace (RAX), Equinix (EQIX), Akamai (AKAM), Limelight (LLNW), and Savvis (SVVS) all near 52-week highs. The REITs, however, have not shared in many of the recent gains, in spite of CoreSite's IPO last week. Digital Realty (DLR) is up just 1.4% over the last three months, while DuPont Fabros (DFT) has been essentially flat since the third quarter began.
Is this all justified? Rackspace is now trading at roughly 45x annualized earnings, on a top line growth rate in the low 20s, and a bottom line growth rate of 60% over the last 12 months. Equinix is just under 4x revenue on a 21% top line growth rate (excluding Switch & Data), and the company is barely breaking even. Savvis is up 37% over the last three months and hasn't had any top line growth over the last 12 months. While the industry's fundamentals remain very strong, there's not enough growth to support a 5x multiple on revenue.
Is this all justified? Rackspace is now trading at roughly 45x annualized earnings, on a top line growth rate in the low 20s, and a bottom line growth rate of 60% over the last 12 months. Equinix is just under 4x revenue on a 21% top line growth rate (excluding Switch & Data), and the company is barely breaking even. Savvis is up 37% over the last three months and hasn't had any top line growth over the last 12 months. While the industry's fundamentals remain very strong, there's not enough growth to support a 5x multiple on revenue.
Monday, July 26, 2010
Savvis Revenue Up 1% year-over-year, raises EBITDA guidance
by David Gross
This morning, Savvis (SVVS) reported revenue of $221 million for the quarter, and raised its annual EBITDA guidance from $210-$225 million, to $220-$240 million.
Operating cash flow was $32 million, free cash -$19 million. The company has over $700 million of debt, some of which came from financing its recent acquisiton of Fusepoint.
Managed services are slowly catching up to colocation, with quarterly revenue climbing to $73 milion from $67 million in the year ago quarter, while colo has held steady at $84 million.
All in all, no big surprises.
This morning, Savvis (SVVS) reported revenue of $221 million for the quarter, and raised its annual EBITDA guidance from $210-$225 million, to $220-$240 million.
Operating cash flow was $32 million, free cash -$19 million. The company has over $700 million of debt, some of which came from financing its recent acquisiton of Fusepoint.
Managed services are slowly catching up to colocation, with quarterly revenue climbing to $73 milion from $67 million in the year ago quarter, while colo has held steady at $84 million.
All in all, no big surprises.
Tuesday, July 6, 2010
Equinix, F5, and Akamai - Growing More by Doing Less
by David Gross
I wrote last week that data center revenue continues to grow in spite of the economy. In particular, three companies from different segments of the data center market, Equinix (EQIX), F5 (FFIV), and Akamai (AKAM), have increased their top line over the last 12 months. However, in years past, I remember hearing how they were going to go away.
Equinix has grown 24% year-over-year as its data centers continue to fill up, and its lease rates continue to rise. But I remember in 2000 hearing how Equinix was not going to stick around a long time, because hosting leaders like Exodus, in addition to the telcos, would put it out of business, and that its service line was too thin. Ten years later, Exodus and many of the ISPs who were supposed to put Equinix out of business are now out of business themselves.
The benefits of a tight product focus have extended to the network equipment market, where Cisco (CSCO) did not have a strong presence in layer 4-7 switching market until it bought Arrowpoint at the top of the market in 2000. And I remember in 2000, the load balancer everyone raved about was not Arrowpoint's, or even F5's BIG-IP , but Foundry's ServerIron. The challenge for the ServerIron was not performance, customer acceptance, or market share, but its parent company's focus on the much larger Ethernet switch market. Today, F5 has twice the market cap of the merged Brocade (BRCD) and Foundry company.
As with F5, economic conditions did not prevent Akamai from reporting year-over-year growth of 12% last quarter. But the last recession did not go too well for the content distribution network provider. It lost its founder in the 9/11 attacks. In 2002, its revenue declined, and it posted an operating margin of minus 141%, which led Wall Street to classify it as another low margin telecom transport provider. The consensus thinking was the CDN market was too small to be important, and if it ever got big, a large carrier would come in and take it over. Yet as it recovered in the mid-2000s, Akamai wisely avoided any temptation to over-diversify. Eight years since bottoming out, the company has grown its top line sixfold, and is on the verge of crossing $1 billion in sales. However, much of its financial strength is not reflected in its income statement, but its balance sheet, where unlike virtually every telco, it has very little long-term debt.
Akamai's primary telco competitor is Level 3 (LVLT), which got into the CDN market by buying Savvis' (SVVS) old business, which got into the CDN market itself by acquiring the American assets of my former employer, Cable & Wireless, which got into CDNs by acquiring Digital Island. Level 3 has had some big wins recently, including mlb.com, but in addition to having to support a wide range of telecom services, it is weighed down by a significant debt load.
It is very easy to cave in to Wall Street pressure to boost top line numbers by making questionable R&D choices, or by entering a market where there is little chance of ever being the number one or two supplier. This pressure is often greatest when multiples are high, and executives start scrambling to justify a growing market cap. But by refusing to go on wild revenue chases when times were good, these three companies have increased sales when times have been bad.
I wrote last week that data center revenue continues to grow in spite of the economy. In particular, three companies from different segments of the data center market, Equinix (EQIX), F5 (FFIV), and Akamai (AKAM), have increased their top line over the last 12 months. However, in years past, I remember hearing how they were going to go away.
Equinix has grown 24% year-over-year as its data centers continue to fill up, and its lease rates continue to rise. But I remember in 2000 hearing how Equinix was not going to stick around a long time, because hosting leaders like Exodus, in addition to the telcos, would put it out of business, and that its service line was too thin. Ten years later, Exodus and many of the ISPs who were supposed to put Equinix out of business are now out of business themselves.
The benefits of a tight product focus have extended to the network equipment market, where Cisco (CSCO) did not have a strong presence in layer 4-7 switching market until it bought Arrowpoint at the top of the market in 2000. And I remember in 2000, the load balancer everyone raved about was not Arrowpoint's, or even F5's BIG-IP , but Foundry's ServerIron. The challenge for the ServerIron was not performance, customer acceptance, or market share, but its parent company's focus on the much larger Ethernet switch market. Today, F5 has twice the market cap of the merged Brocade (BRCD) and Foundry company.
As with F5, economic conditions did not prevent Akamai from reporting year-over-year growth of 12% last quarter. But the last recession did not go too well for the content distribution network provider. It lost its founder in the 9/11 attacks. In 2002, its revenue declined, and it posted an operating margin of minus 141%, which led Wall Street to classify it as another low margin telecom transport provider. The consensus thinking was the CDN market was too small to be important, and if it ever got big, a large carrier would come in and take it over. Yet as it recovered in the mid-2000s, Akamai wisely avoided any temptation to over-diversify. Eight years since bottoming out, the company has grown its top line sixfold, and is on the verge of crossing $1 billion in sales. However, much of its financial strength is not reflected in its income statement, but its balance sheet, where unlike virtually every telco, it has very little long-term debt.
Akamai's primary telco competitor is Level 3 (LVLT), which got into the CDN market by buying Savvis' (SVVS) old business, which got into the CDN market itself by acquiring the American assets of my former employer, Cable & Wireless, which got into CDNs by acquiring Digital Island. Level 3 has had some big wins recently, including mlb.com, but in addition to having to support a wide range of telecom services, it is weighed down by a significant debt load.
It is very easy to cave in to Wall Street pressure to boost top line numbers by making questionable R&D choices, or by entering a market where there is little chance of ever being the number one or two supplier. This pressure is often greatest when multiples are high, and executives start scrambling to justify a growing market cap. But by refusing to go on wild revenue chases when times were good, these three companies have increased sales when times have been bad.
Tuesday, June 29, 2010
Data Center Providers Hit Particularly Hard in Selloff
NASDAQ was down 3.85% today, but data center providers did even worse. Some of the big decliners today included:
One company bucking today's trend was CDN provider Limelight Networks (LLNW), which finished up 3 cents.
- Equinix (EQIX) down 4.66%
- Savvis (SVVS) down 5.33%
- Rackspace (RAX) down 5.33%
- Internap (INAP) down 8.97%
- Akamai (AKAM) down 8.59%
- Terramark (TRMK) down 5.99%
One company bucking today's trend was CDN provider Limelight Networks (LLNW), which finished up 3 cents.
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