Data center deal wins continue for Equinix Inc. (EQIX - Analyst Report). This time the company won a deal from the cloud server provider, Elastichosts.
Equinix’s International Business Exchange (IBX) data center in Hong Kong will be supporting Elastichosts in providing its easy-to-use, pay-as-you-go Cloud Servers to business houses across Asia.
With the help of Equinix’s network density and rich cloud ecosystem, Elastichosts plans to grow its business in the Hong Kong region, along with other Asian markets such as Taiwan, China, Singapore, and other ASEAN countries.
Given that the demand for data centers is increasing rapidly, Equinix is slowly expanding its operations. To fund the expansion plans and working capital requirement, the company made a public offering of senior notes worth $1.5 billion (after deducting issue-related expenses). This will give Equinix access to sufficient funds.
Moreover, as per a recent research report published by Gartner, the total public cloud services market size is expected to increase from $91.4 billion in 2011 to $206.6 billion in 2016. The emerging markets including India, Indonesia and China will witness high growth rates.
The expansion plans have been a part of Equinix’s core strategy. The company is continuously striving to boost its revenue base as well as profitability by increasing its clientele. Its recurring revenue model has provided the much needed support to its revenue stream over the years.
On the other hand, Equinix faces problem with its longer sales cycle. The company has to make a considerable effort to reduce its turnaround time. A customer’s decision to license cabinet space at one of its IBX centers and to purchase additional services takes a lot of time. Moreover, the sales cycle has deteriorated further as a result of the current macroeconomic conditions, as customers are unable to accurately forecast their future business plans and are therefore delaying their purchase decisions.
Although deal wins are adding to the company’s revenue, the high debt level has resulted in the increase in interest costs. Despite all the positives, competitive threats from the likes of AT&T Inc. (T - Analyst Report) raise our apprehension. European exposure and industry consolidation are the other headwinds.
Equinix carries a Zacks Rank #2 (Buy). Investors can also consider other stocks such as Arris Group Inc. (ARRS - Analyst Report) and CA Technologies (CA), both of which have a Zacks Rank #2 (Buy).