Law firm Harwood Feffer LLP has announced that a class action lawsuit has been filed against global network-neutral data centers and Internet exchange service provider Equinix Inc. (EQIX). The lawsuit has been filed by purchasers of Equinix’s common stock in the United States District Court for the Northern District of California.
The complaint alleges that from July 29, to October 5, 2010, Equinix issued a materially false and misleading statement about the company’s business and financial results. Equinix has also been accused of not disclosing the difficulty that it is facing, with respect to the integration of Switch & Data Corporation Facilities Company into its operations.
Integration issues cropped up as a result of the decline in bookings of the acquired company and some discrepancy in its synergy plan. Equinix also did not disclose the weakness in its business model and the increased pricing pressure in its co-location business.
Due to this misrepresentation of facts, the stock price artificially moved up to $105.09 per share on October 5, but plunged to $70.34 per share on October 6, after the company made a downward revision to its third quarter and fiscal year guidance.
Although the matter is subjudice, it might have a negative impact on the reputation of the company if it is proved in the court. We believe this might even attract a financial penalty and lead to further enquiry by other regulatory agencies leading to further hassles.
Equinix is well positioned to capitalize on growing market demand, as many service providers and enterprise network operators are already moving toward the evaluation and deployment of next-generation Ethernet services. Despite all these positives, we remain a bit apprehensive about competition from leading network providers such as AT&T Inc. (T) and Verizon (VZ).
We see a steady increase in Equinix’s client base, courtesy strategic acquisitions that could also enhance its revenue potential. Although increased competition, European exposure, industry consolidation and a long sales cycle remain causes for concern, we believe that Equinix’s efforts to expand the current facilities and its recurring revenue model will support the stock.
Equinix has a Zacks #3 Rank, implying a short-term Hold rating.
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