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Why Equinix Stock Dropped 12% in February

By Reuben Gregg Brewer - Mar 3, 2021 at 10:06AM

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The data center REIT reported earnings that were pretty solid, but investors still weren't pleased. Here's why.

What happened

Shares of data center real estate investment trust (REIT) Equinix (EQIX -1.83%) fell by roughly 12% in February, according to data from S&P Global Market Intelligence. The drop was largely driven by its fourth-quarter earnings update, which on the surface wasn't bad.

So what

In 2020, Equinix grew revenues by 8%, in line with the full-year guidance it laid out in 2019. Adjusted funds from operations (FFO), a metric that REITs use similarly to the way industrial companies use earnings, increased by 9%, which was toward the high side of its guidance range. That all sounds like good news.  

Storm clouds in distance with lightning strike.

Image source: Getty Images.

The REIT is expecting its top line to grow by 10% to 11% in 2021, and forecasts that adjusted FFO will increase by between 8% and 10%, which suggests that another solid year is on tap. However, growth within the company's stabilized assets was only around 3% in Q4 2020, which was at the low end of the company's guidance range. That has investors worried about pricing in the industry, which is getting increasingly competitive. So while last quarter's results may have looked good from the top-down view, when you look deeper, you can see some cracks forming in the REIT's foundation, and competition in its niche continues to heat up.   

Now what

The data center space is likely to see robust growth in 2021, so there's still good reason to be upbeat about Equinix's future. That said, slowing revenue growth at its existing data centers is definitely worth keeping an eye on. If competition around pricing is heating up, as some on Wall Street seem to believe, Equinix's long-term growth prospects could be a little cloudier (pun intended) than they currently appear.

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Equinix, Inc. Stock Quote
Equinix, Inc.
EQIX
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