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Why Shares of GDS Holdings Popped Today

By Timothy Green – Nov 13, 2018 at 3:44PM

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The Chinese data center company grew a bit faster than expected.

What happened

Shares of GDS Holdings (GDS 0.96%) jumped on Tuesday after the Chinese data center operator reported its third-quarter results. GDS beat analyst estimates for both revenue and earnings, and it boosted its full-year outlook. The stock was up about 9.8% at 3 p.m. EST.

So what

GDS reported third-quarter revenue of $111.1 million, up 79.7% year over year in local currency and about $8.3 million higher than the average analyst estimate. Area in service rose 89.3% year over year to 147,342 square meters; the commitment rate for area in service was 96.3%; and the utilization rate was 68.3%.

Servers in a data center.

Image source: Getty Images.

Earnings per share came in at a loss of $0.02, $0.03 better than analysts were expecting. Adjusted earnings before interest, taxes, depreciation, and amortization jumped 125.3% year over year to $43.8 million. "Despite macro market conditions, we continue to see strong demand for high-performance data center capacity in China from across our customer franchise, driven mainly by cloud adoption and AI deployment," said GDS CEO William Huang.

GDS now expects to produce full-year revenue of at least RMB2,750 million, or about $395 million. That new minimum is up 4.6% from the company's previous guidance. Adjusted EBITDA is expected to be at least RMB1,020 million, or about $147 million, up 5.9% from the previous guidance.

Now what

GDS is growing quickly, but it's also taking on a tremendous amount of debt. Total debt, including capital leases, stood at $1.79 billion at the end of the third quarter, up nearly 100% in local currency since the end of 2017.

Through the first nine months of the year, interest expense exceeded GDS's gross profit. Gross margin was 22% in that period, down from 26.1% in the prior-year period. While GDS impressed the market with its third-quarter report, revenue is the only number moving in the right direction.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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