Data Center Giant equinix (EQIX 9.06%) has been under a lot of pressure this year. Shares of the real estate investment trust (REIT) fell more than 15%, weighed down by fears of a slowdown in technology spending. This would likely affect demand for capacity in enterprise data centers.
However, Equinix sees no signs of slowing demand. It was very clear in the REIT data centers second quarter results.
The upward trend in income continues
Equinix posted revenue of $1.8 billion in the second quarter. That was up 10% from the prior year period and 5% from the fourth quarter. He marked the REITs 78th consecutive quarter of revenue growth, which it says is the longest streak of any company in the S&P500 index.
Meanwhile, the REIT’s adjusted funds from operations increased by 6%. It benefited from its strong operational performance, which more than offset higher taxes due to its improved profitability.
However, the big highlight of the quarter was reservations. The company saw record gross bookings in the second quarter, which CEO Charles Meyers noted “well exceeded the previous peak.” The CEO further stated that “the demand environment and our pipeline remain strong despite a complex global macroeconomic and political landscape, as we continue to support digital leaders on their transformation journey.”
This increase in bookings will help drive revenue and FFO growth in the coming quarters. Equinix expects revenue growth of 9-10% this year, after taking into account the effect of currency fluctuations, which are holding back growth. The REIT’s strong bookings in the second quarter will add another $62 million to its revenue for the full year. Unfortunately, he sees a $102 million effect from exchange rates, wiping out that advantage. If currencies were not a factor, revenues would be up 10-11% this year.
A multitude of demand drivers
Despite fears of an economic slowdown, businesses continue to expand. Equinix recently released its 2022 Global Technology Trends Survey, which found that 72% of respondents indicated that their organization plans to grow in the next year. More than half of those who responded said their company planned to increase spending on technology.
This is evident in the demand the company is seeing for its data center solutions. Meyers said on the second quarter conference call“We are seeing this demand for interconnected digital infrastructure across all of our regions. Bookings this quarter were well above the previous peak, a great indicator of the strength of the business and our pipeline going forward.”
The CEO also noted:
Demand remains robust as businesses around the world plan major investments in digital technologies to support ambitious expansion plans following lessons learned from the pandemic. This year, Gartner predicts that global spending on public cloud services will reach nearly $500 billion. And we’re seeing strong demand across multiple vectors with these key cloud and IT customers.
Meyers noted on the call that the digital transformation trend of companies moving more of their processes online is not a “one- or two-year trend, but a systemic, long-term theme.” He said Equinix’s pipeline supports this view, where it is seeing record bookings with strength coming particularly from banking and healthcare. This megatrend is expected to drive the data center giant’s long-term growth.
This leads Equinix to continue investing in expanding its platform. The company currently has 49 major projects underway in 34 metropolitan areas of 21 countries. Meanwhile, it recently acquired four data centers in Chile, increasing its global footprint to 70 metros in 31 countries. It also expects to complete the purchase of a data center in Peru this quarter.
This growth stock is now much cheaper
Shares of Equinix have fallen this year on fears the companies will cut spending on technology. However, he sees no evidence of this. Instead, demand is stronger than ever and isn’t expected to subside anytime soon. For this reason, Equinix’s stock sell-off this year looks like a buying opportunity, given its strong long-term growth prospects.
Matthew DiLallo holds positions at Equinix. The Motley Fool fills positions and recommends Equinix. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.
