There have been a couple of short reports on data centers, in which they lump Equinix in with the rest of the data centers and paint the industry with broad brushes. The crux of the various reports (though not all are fully public) seems to be: The cloud companies are competitors and not partners to data centers providers
The bears may have a case about wholesale data centers; however, they are wrong to pain the whole industry with the same brush. The biggest concern for Equinix is capital allocation, which they've been pretty good at save one bad deal they did early in their life. Large deals are fine, but they better be compelling and become a platform for ample new growth.
Some good perspective here. The fundamental issue in my mind is the ROIC table and SG&A. These businesses are supposed to follow real estate with operational leverage and increasing cash flow from a fixed-cost basis, which leads to scale and attractive ROIC. Unfortunately, operationally, SG&A continues to increase, which defeats that benefit. Equinix SG&A is growing at 13% a year, faster than their revenue. They have promised the market 'leverage' since 2000. That year their stock peaked at $450 per share with $20 million in revenue. Their stock is at $705 today...a 56 percent bump over 20+ years. There have been many ups and downs in that time, AND it still feels like there's a fundamental disconnect in expectations from the market / Wall Street.
You've laid out compelling points. What, in your view, are the largest risks that Equinix, or the space as a whole, face? Surely if the bears are this far off base, they've likely missed legitimate concerns as well.
Doesn't Google have a large collection of peering points/interconnect agreements for it's consumer business that they could leverage?
The bears may have a case about wholesale data centers; however, they are wrong to pain the whole industry with the same brush. The biggest concern for Equinix is capital allocation, which they've been pretty good at save one bad deal they did early in their life. Large deals are fine, but they better be compelling and become a platform for ample new growth.
Even for the consumer business, it all goes through interconnected data centers. Read the book, Tubes, which explains how the internet was built.
Some good perspective here. The fundamental issue in my mind is the ROIC table and SG&A. These businesses are supposed to follow real estate with operational leverage and increasing cash flow from a fixed-cost basis, which leads to scale and attractive ROIC. Unfortunately, operationally, SG&A continues to increase, which defeats that benefit. Equinix SG&A is growing at 13% a year, faster than their revenue. They have promised the market 'leverage' since 2000. That year their stock peaked at $450 per share with $20 million in revenue. Their stock is at $705 today...a 56 percent bump over 20+ years. There have been many ups and downs in that time, AND it still feels like there's a fundamental disconnect in expectations from the market / Wall Street.
I asume the leverage have the ones, who have relationships with the end customers, as they can change their subprpoviders, isn't that so?
You've laid out compelling points. What, in your view, are the largest risks that Equinix, or the space as a whole, face? Surely if the bears are this far off base, they've likely missed legitimate concerns as well.