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Morningstar | Solid 3Q Headline Results For Equinix Aren't Entirely Flawless; Maintaining $415 FVE

Equinix surpassed consensus estimates on top and bottom lines, with revenue up almost 12% year over year and adjusted EBITDA margins holding steady at just under 48%. Our estimates had been above consensus for the quarter and full year, so after adjusting our model for the results and tempering our near-term views a bit, we are maintaining our $415 fair value estimate, as the time value of money bump is offset by those adjustments. However, we don't believe the story has changed. Equinix remains the premier global data center provider for network connections, in our view, distinguishing its assets and leading to our narrow moat rating. We think the stock is worth being on investors' radar after the recent pullback, but we find competitor CoreSite to be a better value at current levels.

Our disappointment was primarily due to the Americas region. Equinix expected softer numbers due to last year's acquisition of 29 data centers from Verizon, which is leading to a higher level of churn. However, given management expected Verizon revenue to be flat overall, we anticipated better than the 2.7% colocation revenue growth in the region, which we estimate included declining average revenue per cabinet for the fourth straight quarter. Americas interconnection revenue growth was also disappointing to us--at 8%, it dropped below double digits for the first time in several years, a factor of revenue per cross connect and cross connects per cabinet being roughly flat and cabinets billed rising only modestly.

Outside of the Americas, Equinix's quarter was largely what we anticipated and continues its impressive growth trajectory. It added another 6,000 cross connects in the quarter, bringing its industry-leading total to 294,000. Interconnection growth continues to outpace colocation growth and remains central to Equinix's allure, in our view. EMEA and Asia-Pacific are continuing their fast growth clips, up 14% and 13%, respectively, on a normalized constant currency basis.

Underlying EMEA and Asia-Pacific revenue were also strong. Year-over-year capacity growth in EMEA was 6%, while utilization was up four percentage points in that time and average revenue per cabinet grew 2%. The number of cross connects in EMEA—99,300—were 10% higher than the year-ago period and revenue per cross connect was up 13%. In Asia-Pacific, year-over-year capacity growth was 14% with a three percentage point improvement in utilization and 8% higher average revenue per cabinet. Asia-Pacific interconnections grew 14% year over year while revenue per cross connect was up 6%. We expect similar strength in EMEA and Asia-Pacific for the next couple years, resulting in our forecast for low-teens revenue growth in those regions through 2020.