Equinix Inc. Celebrates First Quarter As REIT With Massive Earnings Beat

By Markets Fool.com

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The generator room at an Equinix data center. Credit: Equinix via Facebook.

Shares of Equinix stock were up 5.09% at 6:06 p.m. ET Wednesday, as investors celebrated better-than-expected first-quarter earnings. Here's a closer look at the final totals versus Wall Street's projections:

EQIX Revenue YOY Growth EPS YOY Growth
Consensus estimate $637.43 million 9.9% $0.80 (1.2%)
Q1 actuals $643.17 million 10.9% $1.34 65.4%
DIFFERENCE $5.74 million 1% $0.54 66.6%

Sources: S&P Capital IQand Equinix press release.

Commenting on the results, CEO Steve Smith said in a press release:

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Our year is off to a strong start, with demand for our global interconnection platform driving strong performance in all three regions resulting inboth quarterly revenues and adjusted EBITDA significantly above the top end of our guidance ranges. This is our first quarter both operating and reporting as a REIT, and we believe the fundamentals of our business are attractive both to our traditional investor base and the REIT investor community,including our global portfolio of assets, the attractive asset growth, and our long history of success with our new development.

What went right: With its first-quarter operating as a real estate investment trust, or REIT, in the books, Equinix put up strong growth in every territory. Asia-Pacific accounts led the way with a 16.2% top-line boost. Interconnect services, in which Equinix clients' system in the same data center, passed $100 million for the first time. The results suggest growing collaboration in the cloud between companies that depend on a fast on-ramp to the Internet.

What went wrong:At the same time, fewer companies are paying to rent data-center space from Equinix directly. Managed service providers are also relying less on the company for computing and storage. Revenue from these sorts of engagements fell 6% year over year. A 41.7% increase in capital expenditures suggests that Equinix is beefing up Interconnect and Colocation services to fill the gap to come. (At present, managed service providers account for just 3.7% of total revenue.)

What's next:For the second quarter, Equinix projects $654 million to $658 million in revenue, including a negative-$6 million impact from foreign currency. Analysts tracked by S&P Capital IQ have the company generating $654.05 million in revenue and $1.50 a share in adjusted profit, versus $605.16 million and $1.22 a share in last year's Q2. Longer term, analysts have Equinix growing earnings by an average of 25.35%annuallyduring the next three to five years.

And in terms of the overall business? Investors should keep a close eye on growth in the Interconnect business and see how well it coincides with growth in cash from operations and the REIT-centric metric, funds from operations, or FFO. A strong correlation would lend credibility on management's outsized capital spending.

The article Equinix Inc. Celebrates First Quarter As REIT With Massive Earnings Beat originally appeared on Fool.com.

Tim Beyersis a data center unto himself. He's also a member of theMotley Fool Rule Breakersstock-picking team and theMotley Fool SupernovaOdyssey I mission and owned shares of Apple at the time of publication. Check out Tim'sweb homeandportfolio holdingsor connect with him onGoogle+,Tumblr, or Twitter, where he goes by@milehighfool.The Motley Fool recommends Apple, Equinix, and Facebook. The Motley Fool owns shares of Apple and Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.