Data center provider Equinix Inc. (EQIX) recently made an announcement that the cloud infrastructure provider nScaled has started using the Equinix International Business Exchange (IBX) data centers in London and Ashburn. The company is expected to deliver its hybrid cloud and disaster recovery services to customers.
This apart, nScaled has also opened a storefront, where it is using the Equinix Marketplace to promote and sell its services to the more than 4,000 potential customers that are on Platform Equinix. The basic services offered by nScaled help customers to connect with service providers to quickly and securely deploy services.
Equinix’s global footprint of highly secure data centers enables nScaled to provide services that are at par with the most stringent compliance requirements and deliver end-to-end enterprise-class service.
These two solutions taken together will provide nScaled the platform, which will help them to generate revenue by connecting directly with Equinix customers, thereby creating a separate revenue channel for them.
Equinix has been achieving continued business momentum with its critical mass of customers and the resultant “network effect” within its IBX centers. Direct interconnection with its aggregation of networks, which serve more than 90% of the world’s Internet routes, enables customers to increase the efficiency of their IT infrastructure, and remove some complexities of administering and managing their infrastructure, while significantly reducing costs. This is the advantage which attracts customers to use the Equinix platform.
This apart, service offering, such as Equinix Exchange and Equinix Internet Core Exchange significantly reduce the cost of critical transit, peering and traffic exchange operations by eliminating the costs of private peering or local loops. The difficulty and cost associated with changing infrastructure providers serves as a barrier to entry. As a result, Equinix has a loyal customer base, which continues to increase slowly with new wins.
On the other hand, the oversupply of data centers has resulted in some pricing pressures in the recent past, which, coupled with a growing trend among companies to build their own data centers, could act as a dampener for Equinix.
The company delivered mixed third quarter results with earnings per share coming below our expectation. However, revenue improved on a year-over-year basis. We believe further growth in the client base and strategic acquisitions will enhance the company’s revenue potential and expand its geographic reach. Moreover, the company reiterated its 2011/2012 guidance and reaffirmed its target of achieving $3.0 billion in annual revenue by 2015. Moreover, the company is planning to deliver positive adjusted free cash flow by 2013.
We are also encouraged by Equinix’s decision to expand its current facilities as well as its recurring revenue model. Though competitive concerns naturally remain, given offerings from AT&T Inc. (T) and Verizon Inc. (VZ) and the European exposure should also not be discounted, we believe that the new deal wins and positive free cash flow generation will inspire investor loyalty.
Equinix holds a Zacks #2 Rank, implying a short-term Buy rating.
