All Issues With Equinix (EQIX) As Result Of The Merger with Switch And Data Are Passed Say Managing Director At Morgan Joseph; Currently It Is Trading At A Discount To Its True Valuation
On Wednesday September 21, 2011, 5:24 pm EDT
67 WALL STREET, new York – September 21, 2011 – The Wall Street Transcript has just published its Data Hosting Centers & Data Storage Report offering a timely review of the sector to serious investors and industry executives. This Data Hosting Centers & Data Storage Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Strong Quarterly Earnings Reports – Increasing Secular Digitization – International Enterprise and Consumer Demand – Colocation, Managed Hosting and Cloud Computing – Data Center Expansion
Companies include: Microsoft’s (MSFT); Salesforce.com (CRM); 21Vianet (VNET); 3M (MMM) and many more.
In the following brief excerpt from the Data Hosting Centers & Data Storage Report, interviewees discuss the outlook for the sector and for investors.
Ilya Grozovsky is a Managing Director in equity research at Morgan Joseph TriArtisan LLC covering the technology industry. Before Morgan Joseph TriArtisan, mr. Grozovsky was a Partner at MAC Investment Management LLC, a technology, media and telecommunications hedge fund based in new York City. Before MAC, he was an Analyst at Bull Path Capital Management, LLC, and was an Equity Research Analyst covering communications equipment at SoundView Technology Group, J.P. Morgan and ING Barings Furman Selz. He received a B.a. in economics from the University of Maryland, where he was a Gudelsky Memorial Scholar.
TWST: from corporate and enterprise customers, do you see any particular trends there? are the Netflixes and Facebooks a bit more driven by consumer habits?
Mr. Grozovsky: There are a few very large enterprises that can have their own data centers, like a Google (GOOG), like a Facebook. For them, it pays to do it themselves. Maybe they use a company like Digital Realty Trust (DLR), wholesalers essentially of data centers, but certainly not the retail Equinix (EQIX) model. so the example of Facebook might be a little bit of a different category. But certainly, people upload pictures and all of that stuff, and whether it’s on a Facebook or some other Web site, all of that needs to be stored somewhere, so the data centers. That’s how it works.
TWST: Equinix and Akamai – why are they “buys” right now? Is that based on a company-specific trait or strictly stock price?
Mr. Grozovsky: They both trade at discounts to their peers. Equinix, we feel, is putting up very strong results and has essentially the same trends that its peers do and yet trades at a discount. The company had some issues with an acquisition it did of Switch and Data, but we feel like that all passed. that was about a year ago, and all of the issues got worked out eventually. But now we think that it has very strong fundamentals and is trading at a discount to its peers, and that tells me it’s a good buy. On Akamai, a little bit more controversial. you have two pieces of the business there.
You have the volume piece that has pricing pressure associated with it, and then you have the value-added services piece of their business, which is a better business to be in, less pricing pressure. There is a transition going on. The volume piece is coming down while the value-added piece is becoming a larger percentage of the revenues. It is also trading at a discount and is a key player with some reasonably good growth that is actually in the value-added business that’s being masked by the volume business. Long term, that gets worked out as well.
TWST: Let’s talk a bit more about the software companies you cover.
Mr. Grozovsky: The trend is that companies are outsourcing to the cloud most of their infrastructure. and it makes sense, because especially in difficult times, if you need to buy something that costs $1 million or you could pay $50,000 a month in perpetuity for the same software, for the same service, it’s a lot easier to write a check for $50,000 today than for $1 million. Over time you’re going to pay a lot more than $1 million, but you are taking a less risky approach, because maybe it’s better to have the $1 million sitting in your bank account than in somebody else’s.
So this trend is minimizing infrastructure costs and allowing companies to really focus on what they do best, whatever they’re involved of in terms of their business. They don’t have to worry about the IT, they can have most of the applications be run by companies that are specific to that. At our firm, I do the travel and expenses on an Excel spreadsheet, and there’s a company that can do that for you and charge you on a per-use basis, and then it’s all automated and money just shows up in your reimbursement. It’s just a question of time, I think, before most companies outsource these types of functions – their human resources department, for example, which is not key to what a company does, or it’s customer relationship management software, like a Salesforce.com, or for that matter even what GlobalSCAPE does, the ability to transfer files from one location to another securely.
It’s just overhead that could be done cheaper. all of that allows companies to really focus on what it is that they do. There are a lot of companies that pop up with a very specific sort of skill in the cloud. Eventually, I think there will be consolidation there, but for the time being it’s very early in the game. There are a lot of companies with singular skills, whether it’s travel or transferring files or whatever it is.
TWST: what are your recommendations on the software names?
Mr. Grozovsky: we have Salesforce.com rated a “buy” I think that they are really the premier player in this space, growing the top line north of 30% and really competing with old world companies like Oracle (ORCL) that just aren’t even in the same ballpark as far as their offerings in terms of cloud computing. we have GlobalSCAPE rated “buy” and we have Ultimate Software rated a “hold” we like it but it is just a little bit too expensive on the valuation side.
The Wall Street Transcript is a unique service for investors and industry researchers – providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This Data Hosting Centers & Data Storage Report is available by calling (212) 952-7433 or via The Wall Street Transcript Online .
The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.
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