Leading data center solutions provider Equinix Inc. (EQIX) made some revisions to its third quarter and fiscal 2010 guidance that was provided with the second quarter earnings release on July 28. Subsequently, shares have tumbled from roughly $105 to $75 per share.
For the third quarter, Equinix expects total revenue to range between $328.0 million and $330.0 million, below the previous guidance range of $335.0 to $338.0 million. For the fiscal year, Equinix expects total revenue to be roughly $1.22 billion, down from the previous guidance range of $1.23 to $1.24 billion.
The downgrade can primarily be credited to greater-than-expected customer losses in North America and price discounting to secure long-term contract renewals. Moreover, contribution from the Switch and Data business acquired in April 2010 remains insignificant.
However, Equinix expects adjusted EBITDA for the third quarter and fiscal 2010 to be higher than the previous guidance. For the third quarter, Equinix expects adjusted EBITDA to be more than $140.0 million. The guidance is higher than the previously expected range of $136.0 to $139.0 million.
For the fiscal year, Equinix expects adjusted EBITDA to be at the higher end of the previous guidance range of $535.0 to $540.0 million. According to Equinix, better-than-expected gross margins and lower-than-expected operating expenses will more than offset the adverse impact of declining revenue.
Equinix delivered strong year-over-year revenue growth of 39%, reflecting strong demand across international operations and business segments. However, earnings per share of 18 cents missed the Zacks Consensus Estimate of 24 cents, mostly due to lower EBITDA margin. Operating expenses rose 76.2% from the year-ago quarter.
Despite the reductions of guidance, we believe 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. We find Equinix’s expanding facilities across the world quite encouraging.
However, the company’s near-term margin is under pressure due to continuous geographic expansion, increased competition, industry consolidation, exposure to the European market and a longer sales cycle.
We maintain a long-term Neutral rating and currently have a short-term Buy rating (Zacks #2 Rank) on Equinix shares.
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