Wednesday, October 6, 2010

Equinix (EQIX) Loses Quarter of Value on Revenue Warning

I said a few weeks ago, this was going to be a treacherous earnings season if stocks did not have a meaningful correction headed into the reports.   We had seen a few significant warnings at the time, but the market has been overwhelmed by the tsunami of euphoria over QE2.  In this market almost everything moves together so only when company specific news hits a stock, does it usually move out of step with the broader market.  But that only raises the risks ever further as batches of companies are flying up together regardless of their specific situations.

Equinix (EQIX) is a name we have not owned in a while, [Jul 23, 2009: Equinix - Hostess with the Mostest?] but this morning is down some 25% in premarket on a revenue warning.  While it never has been blessed with the sainthood of "cloud computing" it is not that different from current market darling Rackspace Holding (RAX) [also a previous holding] - which derives a whopping 11%ish of revenue from the cloud. [Jul 29, 2009: Colocation Stocks and Industry Overview]  I always cut back exposure on stocks going into earnings because they have become nothing more than a high stakes gamble on red or black, but these next 4-5 weeks are going to require a new level of vigilance since valuations have become so extreme in many stocks (and their charts so extended) that even 'matching analysts expectations' are going to leave many prone to significant pullbacks.

  • Data center services provider Equinix Inc (EQIX.O) cut its third-quarter and full-year revenue outlook, citing underestimated churn assumptions in its forecast models in North America, sending shares down 23 percent after the bell.
  • The company said greater-than-expected discounting to secure longer-term contract renewals and lower-than-expected revenue attributable to the Switch and Data business acquired in April also impacted the outlook.
  • The company now sees revenue of $328-$330 million for the third quarter and full-year total revenue of about $1.22 billion. In July, it had forecast third-quarter revenue of $335-$338 million and full-year revenue of $1.23 billion.  Analysts on average were expecting revenue of $336.8 million for the third quarter and $1.23 billion for the full year.
  • Last month, Chief Executive Steve Smith told Reuters that the company aims to double revenue to $2 billion in 3-5 years, banking on the growing popularity of "cloud computing" and demand from financial services clients.
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