Equinix (EQIX) Investment Memo

Meera Equities 11.10.2020

What company or industry do you want us to cover?

We want to create a community of investors, make sure to subscribe and share!

Investment Thesis

As more companies move/are created online, we believe there will be increased demand for digital infrastructure. Equinix is the world’s largest digital infrastructure company and benefits from a great network effect and an evermore connected world.

Company Description

Equinix is the world’s digital infrastructure company, enabling digital leaders to harness a trusted platform to bring together and interconnect the foundational infrastructure that powers their success. Equinix is a retail provider of data centers, enabling hundreds of enterprise tenants to house their servers and networking equipment in a collocated environment.

Qualitative

Overview:

• Sector: Real Estate

• Industry: REIT – Specialty

• Competitors: CONE, DLR, QTS, COR

Strategy: Expand Platform and Deliver New Services

• Interconnect everyone: discover and reach anyone on demand, through one connection to the world.

• Reach everywhere: Deploy digital infrastructure anywhere it is needed.

• Integrate everything: Activate digital edge as a service

• Interact together: Build ecosystems to find, share, and deliver value.

Business Model: Vendor-neutral multi-tenant data center ("MTDC") provider

• State-of-the-art data centers are billed based on space a power consumption delivered under a fixed duration contract and generate monthly recurring revenue.

• Interconnection Solutions: Connect businesses directly within and between data centers.

• Edge Services: Helps businesses deploy as-a-service networking, security, and hardware across their global data center footprint as an alternative to owning physical infrastructure.

• Enablement Offerings: Equinix offers multiple remote support and professional services designed to streamline digital transformation and deployments for its customers.

Market: Enterprises in need of advanced digital infrastructure.

• Equinix has over 10,000 customers globally.

• Customers include telecommunications carriers, mobile, and other network services providers, cloud and IT service providers, digital media and content providers, financial services companies, and global enterprise ecosystems in various industries.

• Over 50% of the Fortune 500 companies use Equinix data centers.

Moat: Network Effects

• Equinix is the world’s most interconnected data center and interconnection platform in the America’s, Asia Pacific, Europe, the Middle East, and Africa.

• Equinix tenants can connect with each other directly onsite or across Equinix’s data center platform without having to use the public internet greatly increasing security and reducing latency.  

• Enterprises are dependent on networks, networks want to use data centers that house other networks, and networks want to be housed in data centers with the most enterprises.

• Equinix benefits from high switching costs within the industry.

X-Factor: Network Service Providers

• Over 25% of revenue comes from connecting customers with each other.

• Networks use Equinix facilities to connect with each other making their locations a crucial part of the internet’s infrastructure.

• More than 1,800 network service providers offer access to the internet around the world using Equinix’s IBX data centers.

Cash Cow: Space Rental

• 70% of revenue comes from renting space to tenants and related services.

• Revenue per cabinet is projected to increase ~2% annually, monthly recuring revenue per cabinet is $2,000.

• Recurring revenues comprised greater than 90% of total revenues over the last 3 years.

Growth Opportunities:

• Interconnection: Projected to be the fastest-growing business segment (10% of revenue in 2029) driven by customers continually having a greater need to connect with cloud providers.

• xScale Data Centers: New venture in coordination with Singapore’s severing wealth fund designed to serve a targeted group of hyperscale companies including the world’s largest cloud service providers.

• Capture first-mover advantage in future global hubs.

 Quantitative

Risks

• Equinix operates a very capital-intensive business and has a large debt load. As a result, Equinix is sensitive to changes in global interest rates.

• Equinix is a global business and is subject to fluctuating currency exchange rates.

• Equinix’s network effects largely rely on hosting cloud and IT service companies (they make up 30% of revenue) and therefore are subject to these companies playing hardball.

• Technological advancements like IaaS cloud adaption could reduce the need for server space.

Learn Something

• Company Materials: 10-K | Annual Meeting Presentation | Investor Relations

• DataCenter Knowledge: If Everything is a Service, Why Do We Need Data Centers?

• Sify Technologies: Why Data Centers are Necessary for Enterprise Businesses

• Return on Equity: ROE is considered a measure of the profitability of a corporation in relation to stockholders’ equity.

Disclaimer: Meera Capital is not a registered investment, legal or tax advisor, or a broker/dealer. This article reflects the opinions of Meera Capital, this analysis is the basis for informational purposes only. The author of this article may have an interest in the security that is being discussed. Meera Capital encourages all readers to do their own research. This article was written with the intent of providing readers a basis to form their own opinion after reading our thorough analysis.