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What's in the Cards for Equinix (EQIX) This Earnings Season?

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Equinix, Inc. (EQIX - Free Report) will report second-quarter 2021 results on Jul 28, after market close. The company’s quarterly results are expected to reflect year-over-year growth in revenues and funds from operations (FFO) per share.

In the previous quarter, Equinix delivered a surprise of 5.28% in terms of adjusted FFO per share. The results reflected steady growth in interconnection revenues.

Over the last four quarters, the company outpaced the Zacks Consensus Estimate on all occasions, the average beat being 5.22%, on average.

Equinix, Inc. Price and EPS Surprise

Equinix, Inc. Price and EPS Surprise

Equinix, Inc. price-eps-surprise | Equinix, Inc. Quote

Let’s see how things have shaped up prior to the earnings announcement.

Factors at Play

Equinix enjoys a geographically-diversified portfolio. The company has a robust digital footprint of International Business Exchanges (IBX) data centers across five continents, which help it serve its customers with global interconnectivity. Last month, it unveiled an IBX data center —SV11 — in Silicon Valley. These efforts are likely to have enabled the company to capitalize on the strong demand for data centers during the second quarter.

The demand for data-center infrastructure was likely strong in second-quarter 2021. This is because surging growth in cloud computing, Internet of Things and big data, and greater call for third-party IT infrastructure are spurring demand for data-center infrastructure. Growth in artificial intelligence, autonomous vehicle and virtual/augmented reality markets has been creating a solid case for data centers too.

Hence, being infrastructure providers for the rapidly-growing digital economy, data-center providers, such as Equinix, Digital Realty Trust (DLR - Free Report) , CyrusOne Inc. (CONE - Free Report) and CoreSite Realty Corporation (COR - Free Report) , are well placed for sustainable growth.

The coronavirus pandemic has ramped up digital transformation in unthinkable ways and data centers play a crucial role in supporting the development. Data centers have become an essential part of our digital lives and the pandemic has only further highlighted its value. Demand for data centers witnessed a significant boost on increased access to Internet-related services during lockdowns.

Also, rising cloud adoption is expected to have enabled Equinix continue capturing demand and grow its interconnected ecosystems during the second quarter. With 6,700 interconnections added during the first quarter, the company seems well poised to have banked on these trends in the to-be-reported quarter, driving its recurring interconnection revenues. The Zacks Consensus Estimate for the same is pegged at $286 million, suggesting 14.9% growth from the prior-year period.

The company’s solid cash-generating capacity, owing to a stable base of contracted recurring interconnection and collocation revenues, is anticipated to have fueled second-quarter revenue growth. It has reported 73 consecutive quarters of revenue growth. This trend is likely to have continued in the quarter under review as well. The consensus estimate for revenues is pegged at $1.64 billion, suggesting a 11.6% year-over-year improvement. Management forecasts quarterly revenues of $1.63-$1.66 billion, indicating mid-point growth of 2-4% quarter over quarter.

Management projects adjusted EBITDA between $769 million and $789 million for second-quarter 2021.

Prior to the second-quarter earnings release, the Zacks Consensus Estimate for the quarterly FFO per share has been revised marginally upward to $6.72 over the past month. This suggests year-over year growth of 5.8%.

Nevertheless, considering the strong growth potential in the data-center market, competition from other providers might have intensified. Equinix competes with neutral colocation providers as well as with traditional colocation providers, Internet service providers and web-hosting facilities. The increased competition is anticipated to have prompted aggressive pricing policies, making Equinix vulnerable to pricing pressure.

What the Zacks Model Unveils

Per our quantitative model, Equinix does not have the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of a FFO beat this quarter.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Equinix has an Earnings ESP of -0.42%

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

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.