Factors To Look For Ahead Of Equinix's (EQIX) Q3 Earnings

Equinix Inc. (NASDAQ:EQIX) is scheduled to report third-quarter 2017 results on Nov 1.

We believe expansion in important markets and growing demand for data centers along with synergies from acquisition are likely to drive the company’s overall third-quarter results.

Let’s discuss them one by one.

Expansion Strategies

Expansion in important markets and consolidation of facilities in existing ones are crucial parts of Equinix's core strategy. Further, the companyremains positive on growing demand for data centers. To meet the rising demand for cloud services, this global interconnection and data center company is expanding its IBX data centers globally, and gaining popularity among tech companies looking for data management.

In doing so the company recently announced that it has opened the 13th International Business Exchange (IBX) data center — SV10 — in the Silicon Valley. The new center will enable itto meet the growing demand for data center services in theregion. We believe that expanding its facility in the Silicon Valley will attract more enterprises to opt for Equinix’s data center services, in turn, boosting the revenues.

Going forward, the company also has plans to build the its fifth IBX in Hong Kong. The new IBX infrastructure will be known as HK5. With an area of over 48,000 square feet, the HK5 facility will accommodate about 1,200 cabinets.

The recent expansion plan is in sync with Equinix’s $1-billion investment plan announced in April 2017. According to the plan, the company is slated to open five IBX data centers this year, one each at Sao Paulo, Frankfurt, Amsterdam, Silicon Valley and Washington D.C. Apart from this, it also intends to make expansion at 14 of its existing data centers.

In the last reported quarter, Equinix witnessed strong demand for cloud services from corporations interested in enhancing their networks. The company witnessed revenue growth across all three geographic regions and verticals. Robust growth in the global Colocation and Interconnection platforms gave a boost to the top line.

We expect the momentum to continue in the to-be-reported quarter as well, consequentlyboosting its top-line performance. The Zacks Consensus Estimate for revenues is pegged at $1.138 billion, up 23% year over year.

Acquisitions

Acquisitions have been a major contributor to growth at Equinix. Worldwide, itowns 180 IBX data centers across 44 countries. The company hascompleted acquisition of Verizon Communications’s (NYSE:VZ) 29 data centers. The deal will expand its global reach by boosting operations in the United Statesand Latin America. The Zacks Consensus Estimate for revenues in United Statesis pegged at $543 million.

Most recently, the company in a move to spread its European operations, completed the acquisition of an Istanbul-based data center from Zenium. The takeover will significantly expand Equinix’s presence in Turkey as well as Europe, where Zenium enjoys a significant presence. The Zacks Consensus Estimate for revenues in Europe is pegged at $33 million. We believe that the deal will help the company reinforce its global footprint and bring in additional revenues.

Also, the company had announced an agreement to acquire certain businesses — Itconic and its subsidiary CloudMas — from The Carlyle Group (NASDAQ:CG). The deal marks the company’s third European buyoutthis year. Notably, earlier this year, Equinix acquired IO UK's data center operating business in Slough, U.K.and ICT-Center AG’s Zurich-based data center operating business in Switzerland.

All these acquisitions have made decent contributions toward total revenue growth.

Equinix, Inc. Price and EPS Surprise

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

High Debt Burden to Remain Overhang

Escalating interest expenses due to increased debt burden may dampen the company’s profitability. It should be noted that at the end of second-quarter 2017, Equinix had cash, cash equivalents and short-term investments of $1.068 billion, while the total debt principal outstanding was $9.37 billion as of Jun 30, 2017.

Moreover, intensifying competition from established internet data center operators such as AT&T (NYSE:T) and CenturyLink Inc. (NYSE:T) may affect product pricing, consequentlydenting Equinix’s margins.

However, we expect a year-over-year improvement in the bottom-line results, mainly due to higher top-line expectation. The Zacks Consensus Estimate for the quarter is pegged at $4.69, up from the year-ago figure of 68 cents.

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

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