Equinix has long been a sweetheart on Wall Street and a business model poster child for the colocation business. It isn’t always rosy, but for the most part they have proved one of the most stable and successful competitors in the business, building out a data center and connectivity infrastructure that is hard to beat.
From an investment standpoint Wall Street has mostly been bullish with most investment advisors currently supporting buy positions and some neutral positions with no sell positions that we picked up on based on Q1 2013 results. On the most recent April 24, 2013 earnings call CEO Steve Smith indicated FY 2013 should come in at $2.2 billion in revenue, up from $1.895 billion in 2012. Equinix stock price range as quoted by NASDAQ ranged from $80.00 to $206.20 during the 2011 and 2012 period.
Equinix Revenue Profile ($ in millions)
* Switch & Data acquisition year.
One notable comment by Smith during the call: “The operating performance of our 24 North American IBX and expansion projects that have been open for more than 1 year continue to perform well. Currently, these projects are 82% utilized… Our 8 oldest U.S. IBXs grew 5% year-over-year, as customers continue to purchase additional power and cross-connects.” Not an overall indicator of vacancy rates, but a clear indicator that they are not lagging behind with mature or slightly mature properties.
Equinix Profile 12/31/2012
|WW Employees Total||3153|
|WW Employees Sales & Marketing||617 or 19.5 % of total employment|
|Gross Square Feet||6 Million|
|Net Sellable Cabinet Equivalents||101,350|
|Networks||900 plus 110,000 cross connects|
|Market Coverage||38 markets, 15 countries, 5 continents|
|REIT Conversion Target Date||1/1/2015|
|Market Cap||$10.44 billion|
|Switch & Data Acquisition (34 DCs)||4/30/2010|
For Equinix competitors there are a number of lessons that can be learned by studying their business model, growth strategy, and their focus on developing a mature and well defined sales function. Equinix certainly does not make a perfect standard benchmark for all other colocation providers, but there is great value in understanding how they have managed their business over the years to become the company they are today.
One of the many interesting characteristics and significant competitive advantages for Equinix is the combination of network interconnectivity and global footprint. The robust network connectivity Equinix has developed attracts clients in need of this service. The global interconnectivity of these networks between Equinix sites attracts clients with a need for global dispersion, which is a function of battling latency as well as failover and redundancy functionality. Equinix also benefits from the “network effect” which attracts clients that want to be able to interconnect with existing Equinix clients, which is much simpler and more reliable if you are on the Equinix “ecosystem”.
This strategy is what gives Equinix the moniker of “premium colocation provider” as reflected in the following revenue per cabinet growth chart below.
Source: Compiled from various industry sources.
Of particular interest to Equinix competitors should be their sales force growth and development strategy. One of the most common problems we witness for colocation providers is an underinvestment in adequate sales and marketing support.
In their 2010 annual SEC 10-K filing Equinix stated that starting in 2011 “We are also planning significant hiring in our sales force for 2011.” There was no mention of this in the previous year, but it was mentioned again in both 2011 and 2012 annual reports.
Sales and Marketing Growth ($ figures in millions)
|’11 to ’12 Growth||2012||2011||2010*||2009||2008|
|S & M Employees||23%||617||475||320||211||179|
|Growth of S & M Employees||23%||33%||34%||15%|
|S & M Expense||22%||$202.9||$158.3||$110.7||$63.5||$66.9|
|S & M as a % of Revenue (Americas)||10%||11%||10%||9%||7%||9%|
* Switch & Data acquisition year.
The big jump in 2010 was somewhat a function of the Switch & Data acquisition, but the increase in sales and marketing staffing in 2011 and 2012 have shown they are true to their commitment. Sales and marketing expense has also risen both years at 1%, which doesn’t seem particularly impressive but accounts for nearly a $40 million increase each year.
The numbers certainly speak of a larger investment in the Equinix sales force. Anecdotes from veterans suggest Equinix was not always sophisticated about their sales approach in the early days, but their success today is largely a function of how it has matured.
As pointed out by Ravee Mehta (The Emotionally Intelligent Investor, Equinix: A Great GARP Stock With Short Term Catalysts, www.theemotionallyintelligentinvestor.com, October 17, 2012), “Equinix expanded is sales headcount by about 50% over the last 18 months” and continues to say “7 new data centers were scheduled to open in Q3 (2012) making the quarter one of the most important for capacity expansions in the Company’s history.” and finally “It takes time for new sales people to become productive and it appears that Equinix may have perfectly timed productivity increases from new sales people hired over the last 18 months with the significant new capacity.” In other words, Equinix knew the aggressive expansion on the horizon would require additional sale support and times their sales force expansion accordingly. Timing is everything!
Regarding sales strategy, Equinix organizes their sales personnel by vertical markets as well as geographic region. This affords them a level of expertise amongst sales staff that translates to better customer industry knowledge.
Using Equinix as a model benchmark for most colocation providers doesn’t make a lot of sense. It would be like benchmarking a single or two store family grocery operation with Walmart. With a business the size of Equinix there are economies of scale that simply can’t be matched by an average colocation provider. But their business model and focus on a properly aligned and supported sales and marketing function should be viewed as a case study everyone can learn from.
This report is for informational purposes only and should not be construed as investment advice. Seek an appropriate professional for investment advice. Financial data sourced from SEC form 10-K 2/26/13 or earlier. For questions about this report contact Alan Howard at ahoward at wiredre.com or 602-885-5311.