What's in the Offing for Equinix (EQIX) in Q1 Earnings?

Zacks Equity Research
·5-min read

Equinix, Inc. EQIX will report first-quarter 2021 results on Apr 28, after market close. The company’s quarterly results are expected to reflect year-over-year growth in revenues and funds from operations (FFO) per share.

In the last reported quarter, Equinix delivered a surprise of 1.95% in terms of adjusted FFO per share. The upside primarily stemmed from robust top-line growth, marking the 72nd quarter of consecutive growth.

The company has a remarkable streak of beating FFO estimates over the past four quarters. Equinix surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the surprise being 4.9%, on average.

Equinix, Inc. Price and EPS Surprise

Equinix, Inc. Price and EPS Surprise
Equinix, Inc. Price and EPS Surprise

Equinix, Inc. price-eps-surprise | Equinix, Inc. Quote

Let’s see how things have shaped up prior to the earnings announcement.

Factors at Play

Equinix has a strong digital footprint of International Business Exchanges or IBX data centers across five continents. The geographical diversity is a competitive advantage for the company, allowing it to provide its customers with global interconnectivity. This has likely enabled Equinix to capitalize on the strong demand for data centers and ink leases with customers in the first quarter.

Markedly, the demand for data-center infrastructure has likely remained robust in first-quarter 2021. This is because technological advancements such as The Internet of Things, 5G, autonomous vehicles and artificial intelligence have been driving digital transformation. Moreover, escalating growth of data, rapid accelerations in cloud adoption and greater demand for IT outsourcing have been creating a solid case for data centers.

Hence, being infrastructure providers for the rapidly-growing digital economy, data center providers such as Equinix, Digital Realty Trust DLR, CyrusOne Inc. CONE and CoreSite Realty Corporation COR are well-placed for sustainable growth.

Apart from these, in the wake of the coronavirus pandemic and continued virtual working environment, data centers are likely to have benefited from the heightening reliance on technology. With this, demand and occupancy are anticipated to have remained strong in top-tier data-center markets during the quarter under review.

Also, increasing cloud adoption is expected to have enabled Equinix to continue to capture demand and grow its interconnected ecosystems in the first quarter. With 7,700 interconnections added in fourth-quarter 2020, the company seems well-poised to have capitalized on these trends in the first quarter, driving its recurring interconnection revenues. Notably, the Zacks Consensus Estimate for the same is pegged at $277 million, suggesting 14.5% growth from the prior-year reported figure.

Further, its solid cash-generating capacity, owing to a stable base of contracted recurring interconnection and collocation revenues, is expected to have driven first-quarter revenue growth. The company has reported 72 consecutive quarters of revenue growth. The trend is likely to have continued in the quarter under review as well. Overall, the consensus estimate for first-quarter 2021 revenues is pegged at $1.60 billion, suggesting a 10.5% year-over-year improvement. Management expects quarterly revenues of $1.587-$1.607 billion, implying mid-point growth of 2% quarter over quarter.

However, considering the strong growth potential in the data-center market, competition is expected to have increased from other providers. Notably, churn rate — which is the rate at which customers shift to other providers — is high in the Americas. The increased competition is anticipated to have prompted aggressive pricing policies, making Equinix vulnerable to pricing pressure. This is expected to have hindered cabinet pricing and billings for the company in the quarter under review.

Also, while investments in business and new products, and enhancement of its go-to-market footprint are strategic for the long term, it is likely to have hindered margin growth in the first quarter. Management expects adjusted EBITDA between $737 million and $757 million for first-quarter 2021.

Additionally, the company’s activities during the March-end quarter were inadequate to gain analysts’ confidence. Consequently, the Zacks Consensus Estimate for first-quarter FFO per share has been unchanged at $6.63 a month. Nonetheless, it indicates 6.8% year-over-year growth.

Earnings Whispers

Equinix does not have the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of a FFO beat this quarter.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Equinix has an Earnings ESP of -2.01%

Zacks Rank: Equinix currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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Equinix, Inc. (EQIX) : Free Stock Analysis Report

Digital Realty Trust, Inc. (DLR) : Free Stock Analysis Report

CoreSite Realty Corporation (COR) : Free Stock Analysis Report

CyrusOne Inc (CONE) : Free Stock Analysis Report

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