Last night, Equinix (NASDAQ:EQIX, news, filings) did something they rarely do, they lowered revenue estimates for the third quarter and the full year. The company says it underestimated churn as well as discounting to secure longer term contract renewals, plus a dip on revenues from the assets acquired from Switch & Data. In July they had projected revenues to come in at $335-338M, but now see them 2.2% lower at $328-330M, while for the full year they cut back their forecast of $1.225-1.235B to $1.215B. Equinix’s plans this year have been grand, with buildouts and initiatives all over the globe even while consolidating a rather large acquisition.
On the brighter side, they did raise third quarter and full year EBITDA to $140+ and $540M, up from forecasts of $136-139M and $535-540M. That didn’t do much to console traders after hours, who sold off the stock – not to mention those of neighbors Savvis (news, filings) [a subsidiary of CenturyLink (NYSE:CTL, news, filings)] , Rackspace Hosting (NYSE:RAX, news, filings), Terremark (news, filings) [a subsidiary of Verizon (NYSE:VZ, news, filings)] . However, it is far from certain that there is a sector-wide trend here. Equinix has been gaining ground for so long that we often forget that sometimes the competition may get a turn now and then. The initial market reaction seems a bit of overkill though. While Equinix’s stock has been hot for the last few months, it was rather cold for before that.
Honestly, part of the problem here is that Equinix offers such tight guidance ranges, they leave little room for error. Their guidance range is so very tight, even for a very predictable business. Perhaps they will come back next year with a bit wider goalposts? Of course, then it’s harder to beat guidance as well, which is something they usually enjoy doing.
It does demonstrate that Equinix’s purchase of Switch & Data did not damage competition in the sector, if anything it is increasing. All that space that has been getting built since the credit markets thawed last year is having an effect, overtaking demand briefly here. Equinix has been building more than its share of it too.
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Let’s start the downgrade game:
Oppenheimer to perform as reduced outlook raises questions about management credibility;
Citi to hold given the absence of a meaningful acceleration in revenue growth during the second half of 2010
Wells Frago to market perform as it looks for concrete evidence on issues surrounding the company’s revised outlook.
Morgan Joseph maintains a ‘Buy’ but lowers price target to $110
Personally, I won’t find satisfaction until the “computer” spits out, “EQIX hits a new 52 Week Low.” That’s the best way to send out a powerful dose of FEAR!
With news like this where Gorillas in the Midst lurk, their downgrades and selling are warranted. imo
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