Data center giant Equinix (EQIX 0.20%) has been under a lot of pressure this year. Shares of the real estate investment trust (REIT) have tumbled more than 15%, weighed down by concerns that tech spending will slow. That would likely affect demand for capacity in the company's data centers.
However, Equinix isn't seeing any signs of a slowdown in demand. That was abundantly clear in the data center REIT's second-quarter results.
NASDAQ: EQIX
Key Data Points
The revenue uptrend continues
Equinix reported $1.8 billion in revenue during the second quarter. That was up 10% over the prior-year period and 5% from the fourth quarter. It marked the REIT's 78th consecutive quarter of revenue growth, which it says is the longest streak of any company in the S&P 500 index.
Meanwhile, the REIT's adjusted funds from operations increased by 6%. It benefited from its strong operating performance, more than offsetting higher taxes because of its increased profitability.
However, the big highlight in the quarter was bookings. The company delivered record gross bookings in the second quarter, which CEO Charles Meyers noted "sizably surpassed the prior peak." The CEO further commented that "the demand environment and our pipeline remain robust despite a complex global macroeconomic and political landscape, as we continue to enable digital leaders on their transformation journey."
That booking surge will help drive revenue and FFO growth in the coming quarters. Equinix expects its revenue to grow by 9% to 10% this year, after accounting for the effect of foreign exchange fluctuations, which are cutting into its growth. The REIT's strong bookings in the second quarter will add an incremental $62 million to its full-year revenue. Unfortunately, it sees a $102 million effect from exchange rates, erasing that benefit. If currencies weren't a factor, revenue would be up by 10% to 11% this year.
A multitude of demand drivers
Despite concerns about an economic slowdown, businesses continue to expand. Equinix recently released its 2022 Global Tech Trends Survey, which found that 72% of respondents indicated that their organizations expected to expand over the next year. Over half of those who responded said their companies plan to increase their tech-related spending.
That's evident in the demand the company is seeing for its data center solutions. Meyers stated on the second-quarter conference call: "We're seeing this demand for interconnected digital infrastructure across our regions. This quarter's bookings sizably surpassed the prior peak, a great indicator of the strength of the business and our go-forward pipeline."
The CEO also noted:
Demand remains robust as businesses around the world are planning major investments in digital technologies to support ambitious expansion plans following lessons learned from the pandemic. This year, Gartner projects 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 businesses bringing more of their processes online isn't a "one- or two-year trend, but a systemic and long-term theme." He said that Equinix's pipeline supports this view, where it's seeing record bookings with strength coming from banking and healthcare in particular. This megatrend should drive growth over the long term for the data center giant.
That's leading Equinix to continue investing in expanding its platform. The company currently has 49 major projects underway across 34 metro areas in 21 countries. Meanwhile, it recently acquired four data centers in Chile, growing its global footprint to 70 metros across 31 countries. It also expects to close the purchase of a data center in Peru this quarter.
This growth stock is now a lot cheaper
Shares of Equinix have tumbled this year on fears that companies would pull back on tech-related spending. However, it isn't seeing any evidence of this. Instead, demand is stronger than ever and isn't likely to cool off anytime soon. Because of that, this year's sell-off in Equinix stock looks like a buying opportunity, given its robust long-term growth prospects.
