Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Long Ideas

Is Equinix (EQIX) making money from data centers?

daniel , , , , , , , , , , , , ,

Equinix (EQIX) has become one of the world’s most popular infrastructure stocks. Notably, Mr. Market paid $829.55 for Equinix shares on 12 July 2021.

During the pandemic year, Equinix Inc. (NASDAQ: EQIX) shares rose from $716.59 on 10 July 2020 to $829.55 on 12 July 2021. The reason for Equinix’s rise in value is obvious.

Equinix is one of the most prominent operators of data centers. Data centers are those giant buildings that house the machines upon which the cloud and the internet operate.

Equinix claims to own and operate a network of over 220 International Business Exchange (IBX) data centers in 63 major metropolitan areas around the world. Additionally, Equinix claims over 260 Fortune 500 companies use its services. In addition, Equinix claims its data centers have over 10,000 customers.

Equinix Makes money from Interconnection

Equinix (EQIX) claims those customers include Netflix (NFLX) and Cisco Systems (CSCO). Equinix’s partners include Amazon Web Services (AWS), Alphabet’s Google Cloud, Oracle (ORCL), Cisco (CSCO), Dell Technologies, F5, NetApp, and VMWare.

I think one of Equinix’s profit centers is its Interconnection services. An interconnection is the physical integration of a carrier’s network with equipment and facilities outside the network. For example, the connection between Netflix’s servers and the cloud.

The Equinix Interconnection services include Equinix Fabric. Equinix Fabric connects distributed infrastructure and digital ecosystems with the Cloud. The Equinix Internet Exchange connects services to the Cloud. Equinix Connect combines comprehensive internet access with Equinix IBX data centers.

Equinix Metro Connect provides network connectivity through multiple IBX centers in one metro area. Meanwhile, the Equinix Fiber Connect provides a dark fiber connection to IBX data centers in a metropolitan area. Cross Connects provides business with access to reliable high-performance networks. Platform Equinix offers physical virtual and physical integration with the Cloud.

The Interconnections allow Equinix to serve customers in many fields including automotive, government, managed services, payments, cloud services, healthcare, manufacturing, transportation, content and digital media, the Internet of Things (IoT), and Network Service Providers.

Does Equinix make money?

Equinix (EQIX) makes some money from data centers. For instance, Equinix reported a quarterly operating income of $297.66 million on 31 March 2021.

The quarterly operating income rose from $253.48 million on 31 March 2020. In addition, Equinix’s quarterly gross profit grew from $708.26 million on 31 March 2020 to $784.85 million on 31 March 2021.

Overall, Equinix’s quarterly revenues rose from $1.425 billion on 31 March 2020 to $1.603 billion on 31 March 2021. Hence, Equinix grew during the pandemic year.

Notably, Stockrow estimates that Equinix’s revenues grew by 11.71% in the quarter ending on 31 March 2021. The quarterly revenue growth rate grew from 5.27% in the quarter that ended on 31 March 2020.

How Much Cash Does Equinix generate?

Conversely, Equinix’s quarterly operating cash flow fell from $516.83 million on 31 March 2020 to $391.16 million on 31 March 2021.

Equinix (EQIX) can generate enormous amounts of cash. It reported quarterly ending cash flow of $1.772 billion on 31 March 2021. The quarterly ending cash flow fell from $1.187 billion on 31 March 2020.

However, Equinix borrows enormous amounts of money . It reported quarterly financing cash flows of $412.65 million on 31 March 2021and $3.563 billion on 30 June 2020. Consequently, Equinix’s total debt grew from $13.08 billion on 31 March 2020 to $14.606 billion on 31 March 2021.

Yet Equinix finished the pandemic year with more cash. Equinix’s cash and short-term investments rose from $1.204 billion on 31 March 2020 to $1.767 billion on 31 March 2021.

What Value does Equinix Have?

Interestingly, Equinix (NASDAQ: EQIX) lost value during the pandemic. Notably, Equinix’s total assets fell from $23.591 billion on 31 March 2020 to $23.317 billion on 31 March 2021.

Thus, I conclude that data centers are not the money machines some investors think they are. Instead, data center operators can lose money and value. Mr. Market, however, has not noticed. Instead, I think he grossly overpriced EQIX at $820.32 on 9 July 2021.

On the other hand, I consider Equinix a splendid dividend stock. Notably, Equinix paid a $2.87 quarterly dividend on 17 March 2021 and 16 June 2021. That dividend grew from $2.66 on 9 December 2020. Hence, Equinix’s dividend grew by 11₵ in a quarter.

In Total Equinix shares offered an $11.06 LTM (Last Twelve Months) dividend and a 1.34% yield on 9 July 2021. Hence, I think Equinix could be an excellent choice for investors need growing income.

Equinix (EQIX) could experience significant growth

Theoretically, Equinix (EQIX) could experience significant growth in coming years.

To elaborate, Gartner estimates global spending on public cloud services could grow by 18.4% in 2021. Gartner forecasts that public cloud spending could grow from $257.5 billion in 2020 to $304.9 billion in 2021.

This spending could benefit Equinix because public cloud providers need data centers to host their services. In particular, those companies will need secure connections such as Equinix Fiber Connect’s dark fiber connection to IBX data centers.

In the final analysis, I think Equinix is an interesting dividend stock with strong value characteristics and growth potential. Unfortunately, Equinix is a stock Mr. Market grossly overprices. I advise investors to avoid Equinix because I think its share price will collapse.