Terremark Reports, Takes a Hit From Traders

Colocation and cloud computing provider Terremark (news, filings) [a subsidiary of Verizon (NYSE:VZ, news, filings)] reported earnings yesterday, and the market didn’t much like what they had to say.  Revenues of $74.3M were up from $69.8M in the prior quarter and from $65.8M in the same period last year.  EBITDA of $19.8M was up from $18.0M in the prior quarter.  Both of those numbers were solidly within guidance, but the loss per share of $0.13 was larger than apparent analyst expectations of just $0.09 and costs rose perhaps more quickly than expected.  Some of those costs kicked in as a result of the completion of the company’s second data canter at the NAP of the Capital Region, as scheduled.

The company provided fairly detailed guidance.  Revenues should be $80.1-85.1M in the company’s fiscal Q4 which will add up to $290-295M for the full year.  For fiscal 2011 which starts in April, revenues are projected at $335-340M, for roughly at 15% growth rate.  EBITDA will see a seasonal surge into the $25.4-30.4M range for fiscal Q4, and then fall in the $95-100M range in fiscal 2011 – also rising steadily at about an 18% annualized rate. But this fell a bit short of expectations, which supposedly were in the range of $348M in revenues and $108M in EBITDA.

Now, it certainly wasn’t anything spectacular, but frankly it seems to me that a 16% hit is a bit overdone.  Perhaps the real disconnect here lies in Terremark’s venture into cloud computing, which has added a sexy dynamic to how they are perceived on the street.  Despite their early successes in this space, the annualized run rate of their revenues from the cloud are just $17.2M, or just 6% of revenues which is not enough to really move the needle yet.

Terremark remains primarily a colocation company, a great and growing business to be in but one that is rather predictable.  The market may simply be impatient to see its cloud offerings blossom, but new products and technologies always take longer than traders think they will to reach scale.  I think Terremark is right not to promise the moon too early.

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Categories: Cloud Computing · Datacenter · Financials