Equinix Earnings: Underlying Metrics Not as Positive as Revenue Suggests, but Outlook Remains Bright

There were plenty of data points for both bulls and bears to latch on to in narrow-moat Equinix’s EQIX third quarter, and we continue to find ourselves squarely in between. We still expect demand to remain very strong for data center space for the foreseeable future, and the quality of Equinix’s portfolio makes it uniquely positioned to best serve many customer needs. However, we believe the current stock price reflects even better performance than we expect, and we maintain our $630 fair value estimate. We also think Digital Realty is closing the gap with Equinix as the firm with the most useful data centers for tenants.

Total revenue was up 12% year over year despite a 2-percentage-point currency headwind, though sales were buoyed by price hikes Equinix implemented last year to account for rising power costs, especially in Europe. But pricing has been strong even excluding the power price increases, and management expects power to account for only about 6 percentage points of the 14%-15% constant-currency sales growth it forecasts for the full year. While average revenue per cabinet is rising significantly, total cabinets billed has been largely flat so far in 2023, with 200 fewer cabinets billed at the end of the third quarter than the second, despite capacity being added.

We think it’s a mistake to focus too much on short-term fluctuations in cabinet utilization, as many variables are at play, including location-specific availability and the types and sizes of customers that make up the mix. It’s encouraging that sales can grow so quickly in a year without a much higher number of cabinets in use, and we see nothing suggesting that Equinix’s data centers are becoming less attractive, or that there is a waning need for data centers. On the contrary, we continue to believe greater data reliance for all businesses and the tighter connections customers need with their cloud providers will increase demand for interconnected data centers, which remains Equinix’s forte.