Equinix Eyes Expansion In Hong Kong With 5th IBX Data Center

Equinix Inc. (NASDAQ:EQIX) recently announced its plan to build the company’s fifth International Business Exchange (IBX) in Hong Kong. The new IBX infrastructure, which will be known as HK5, will commence operation in fourth-quarter 2017. With an area of over 48,000 square feet, the HK5 facility will accommodate about 1,200 cabinets.

This expansion will enable the company to meet the growing demand for data center services in the city. Citing a report of Microsoft (NASDAQ:MSFT) Corporation (NYSE:T) , Equinix noted that “business leaders in Hong Kong are showing urgency in embracing the fourth Industrial Revolution, and 66 percent recognize the need to transform to a digital business to enable future growth. However, the study also cited a lack of supporting Information and Communication Technology (ICT) infrastructure as one of the major barriers to digital transformation.”

Upon completion of the HK5 facility, Equinix will have 30 data centers in the Asia-Pacific region. Worldwide, the company owns 180 IBX data centers across 44 countries.

Equinix stock has gained 22.1% in the last one year, substantially outperforming the 18.5% loss incurred by the industry it belongs to.

The investment is part of Equinix’s latest string of expansion initiatives across the Asia-Pacific region. This is in sync with the company’s recent development of data centers in Melbourne, Hong Kong, Singapore, Sydney and Tokyo.

The aforementioned investment will enable Equinix offer customers the benefit of its cloud infrastructure, including a secure connection, outstanding scalability and infrastructure dependability.

We believe that the new data center will widen the company’s footprint across the Asia-Pacific region. The facility will help Equinix address the rising demand for cloud services in the region. The increase in demand is also evident from the findings of an independent research firm – Gartner.

According to this technology research firm, total public cloud services market in the Asia-Pacific region is anticipated to grow 17.7% in 2017 and reach $10 billion, up from $8.5 billion in 2016.

An increase in public cloud services will boost demand for data centers. Per the Gartner report, the mature Asia-Pacific market covers Australia, New Zealand, Singapore and South Korea.

Bottom Line

Equinix remains positive on growing demand for data centers. Toward this end, the company is expanding its IBX data centers globally and gaining popularity among tech companies, which are seeking data management. Thus, the company expects its total addressable market for retail data centers to witness a CAGR of 8% from 2013–2017 and reach $24 billion. Based on this, Equinix projects revenue growth rate of 10% through 2017.

Therefore, we believe that the expansion of its data center assets will enable Equinix to capitalize on this opportunity. Moreover, the expansion will help the company fortify its global footprint and bring in additional revenues.

Nonetheless, we are concerned about the company’s growing debt burden, which will adversely affect the operating results as interest expense would flare up. Also, intensifying competition from the likes of AT&T (NYSE:T) and Verizon Communications (NYSE:VZ) , as well as industry consolidation remain other near-term headwinds.

Currently, Equinix carries a Zacks Rank #3 (Hold).

A better-ranked stock in the same industry space is American Assets Trust, Inc. (AAT) which carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

The stock has witnessed upward estimate revision for 2017 and 2018 in the last 30 days, and has long-term expected EPS growth rate of 5.9%.

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