Please ensure Javascript is enabled for purposes of website accessibility

Why Equinix Stock Dropped 12% in February

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

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Equinix, Inc. Stock Quote
Equinix, Inc.
$634.94 (-1.83%) $-11.87

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/18/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.