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01 May 2009
Equinix
Analyst Day Handbook
EQUINIX AT YOUR FINGERTIPS. On May 5, Equinix will host an analyst day in New York City. This report provides an overview of what we believe are key issues facing Equinix as well as a quick reference to relevant company and industry data. This includes 1) a checklist of questions we hope will be addressed at the meeting; 2) managements 2009 guidance and our review of first-quarter 2009 results; and 3) company financial and operating data (annual and quarterly income statement projections, the balance sheet, cash flow projections, and key operating metrics). KEY ISSUES. We believe the key issues facing Equinix are: 1) the challenges posed by continued economic weakness; 2) the companys long-term expansion plans; 3) revenue growth opportunities through expanding ARPU and improving penetration of high-margin interconnection services; 4) the potential impact of nascent technologies on data center capacity needs; and 5) the ability to generate free cash flow amid high capital spending plans. INVESTMENT OPINION. We believe Equinix operates the premier carrier neutral data center assets. The companys scale and brand enable it to attract a strong client base, including the worlds largest bandwidth providers and many of the largest and fastest growing content providers and enterprises. We believe Equinixs strong balance sheet should enable it to grow faster than the overall colocation market as it invests for growth both domestically and internationally. In addition, we are attracted to the defensive nature of Equinixs recurring revenue business, which should help mitigate the impact of broader economic weakness.
Overweight
EQIX, EQIX US Price: $70.23 Price Target: $72.00
Scott Goldman
(1-212) 622-2664 scott.goldman@jpmorgan.com
Manish Jain
(1-212) 622-8692 manish.x.jain@jpmchase.com J.P. Morgan Securities Inc.
Price Performance
110 90 $ 70 50 30
Apr-08 Jul-08 Oct-08 Jan-09 Apr-09
1m 23.2%
3m 25.3%
12m -21.9%
Equinix, Inc. (EQIX;EQIX US) 2008A EPS ($) Q1 (Mar) Q2 (Jun) Q3 (Sep) Q4 (Dec) FY 0.15 0.06 0.19 2.74 3.31 2009E
(Old)
2009E
(New)
2010E
(Old)
2010E
(New)
1.35
1.51
Source: Company data, Reuters, J.P. Morgan estimates. Note: Prior EPS figures are based on non-GAAP results. Revised estimates reflect GAAP accounting.
Company Data Price ($) Date Of Price 52-week Range ($) Mkt Cap ($ mn) Fiscal Year End Shares O/S (mn) Price Target ($) Price Target End Date
Cash Flow Generation. When does Equinix expect to turn free cash positive on a sustainable basis? How should investors think about the balance of continued growth versus generation of cash flow? Given results to-date, what are Equinixs plans for the $90M of unannounced capital in the current budget? What are the long-term capital needs of the business? Do expansion opportunities warrant increasing leverage once credit markets improve?
Economic Impact
We believe Equinix is moderately levered to the overall enterprise market, which is currently suffering from lengthening of sales cycle and delays in decision making due to economic woes. Equinix management highlighted lower bookings in its fourth quarter, which prompted management to uncharacteristically lower 2009 revenue expectations at that time. These booking trends extended into the first couple of months of 2009, though rebounded in March. Importantly, management noted that lengthening sales cycles are showing signs of stabilization. We believe that Equinixs recurring revenue business model is attractive, but are concerned with the impact of the economy on customer purchasing patterns. We hope to get a better sense for the potential impacts of further corporate downsizing on Equinix results at the Analyst Day.
Expansion Plans
While economic conditions may limit demand visibility, we anticipate Equinix to update the investment community on expansion plans beyond current projects. Excluding Europe, Equinix added 6,100 sellable cabinets in 2007 and 4,100 in 2008. With planned expansion in Chicago, Los Angeles, and New York, as well as Hong Kong, Singapore, and Sydney in the Asia-Pacific region, we forecast a similar increase of sellable capacity in 2009. Including Europe, net sellable cabinet capacity is expected to increase more than 15%, to nearly 62,000 from 2008 through 2010. We look for an update on 2010 expansion projects, which currently only include 1,400 cabinets in London. Future plans should also provide an outlook for capital expenditure requirements, providing more clarity on 2010 cash flow needs/generation.
Table 1: Data Center Expansion Plans -- 2009-2010
$ in millions Data Center Los Angeles 4 New York 4 phase II SG2 phase I Paris 3 phase I London 5 phase I Target Open 2Q09 Sellable cabinets 800 Total Capex $90-$95 Comments phase I mechanical and electrical infrastructure will be built to support 1,700 cabinets; 800 will be available 2Q09, 900 will be shifted to future phases, along with the additional 1,300 sellable cabinets previously announced 300 cabinets available 1Q09 and remaining 800 cabinets available 2Q09 additional capacity for 1,000 cabinets in future phases additional capacity for 1,300 cabinets in future phases additional capacity for 4,100-4,600 cabinets in future phases
Revenue Growth
In addition to market expansion, we continue to be focused on the pricing environment for colocation and interconnection services. Historically, management has indicated that the company benefits from 3%-5% annual price increases and recent commentary suggests this benefit is unchanged despite the economy. However, these increases account for only a portion of the increasing ARPU trends at Equinix. Growing cross connects per cabinet and increasing power usage are also contributing to higher revenue per cabinet. As a result, weighted average monthly recurring revenue (MRR) per cabinet for the U.S. and Asia-Pacific regions rose 8.5% from a year ago in the most recent quarter, the largest increase in more than two years. However, ARPU figures differ significantly by region, with the U.S. the highest and more than double that of Europe; Asia-Pacific MRR per cabinet is approximately three-fourths that of the U.S., but is growing at a faster pace given the smaller base and rapid interconnection growth. Interconnection represents an important opportunity for Equinix, particularly in Europe where peering has largely been done for a fraction of U.S. pricing by not-for-profit Internet Exchange Points. We look for an update on the companys progress in developing the interconnect opportunity in its European properties.
Figure 1: U.S. Revenue Trends and Sequential Growth
$ in millions
$140 $120 $100 $80 $60 $40 $20 $0 1Q07 2Q07 3Q07 4Q07 U.S.
Source: Company reports and J.P. Morgan estimates.
15% 10% 5% 0% -5% -10% -15% 1Q08 2Q08 3Q08 4Q08 1Q09 U.S. Grow th
$60 $50 $40 $30 $20 $10 $0 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09
A sia-P acific A sia-P acific Gro wth Euro pe Euro pe Gro wth
$1,800 $1,700 $1,600 $1,500 $1,400 $1,300 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09
ARPU
Source: Company reports and J.P. Morgan estimates.
Grow th
Margin Opportunity
Equinixs business model employs a predominantly fixed cost structure, with labor and rent accounting for more than half of the cash costs. As a result, Equinix demonstrates considerable operating leverage as it increases utilization of existing data centers, leveraging its fixed costs over a larger base. This leverage is offset by on-going start-up costs associated with its active expansion strategy. Incremental EBITDA margins were 41% in 2007, rising to 48% in 2008, and we forecast 55% incremental contributions in 2009; notably incremental margins were 85% in 1Q09. EBITDA margins in the U.S. reached 50.4% in 1Q09, nearing the 51% long-term expectations set in late 2007. Asia-Pacific has also reached its long-term objective, at 45.4% in the quarter. We anticipate both of these regions to experience near-term volatility in margins as expansion comes online, though ultimately we believe margins can surpass current levels. Operating at 34% margins, Europe continues to represent an important margin opportunity. Increasing the contribution from interconnection services should provide a lift over time, though lower ARPU, in part due to a different model for power revenue, could limit European margin expansion.
Figure 4: EBITDA by Region and Consolidated EBITDA Margins
$ in millions
$100 $75 $50 $25 $0 1Q07 2Q07 U.S. 3Q07 4Q07 Asia-Pacific 1Q08 2Q08 Europe 3Q08 4Q08 1Q09
EBITDA Margin
Technology Threats
We hope to gain a better understanding of how newer technologies are shaping data center supply and demand trends. Two technologies in particular have garnered a fair level of interest: virtualization and cloud computing. Virtualization allows for the partition of hardware servers into two or more independent servers, enabling the creation of virtual environments that act independently of each other. In theory, virtualization could reduce demand for data center services as companies can meaningfully reduce their hardware requirements by better utilizing existing servers, reducing the need for additional capacity. Virtualization applies mostly to enterprise users rather than network providers, limiting its overall impact. However, virtualization increases power and cooling needs, partially offsetting the benefit of fewer servers. Cloud computing is a more nascent technology which refers to the delivery of resources and applications over the Internet (i.e. the cloud). We believe the technology can be both a threat and an opportunity for data center operators such as Equinix. Growing adoption of cloud computing could drive increased data center demand as service providers use data centers to house software and data servers. However, like virtualization, cloud computing provides a means to increase server utilization, potentially reducing capacity needs.
$175 $150 $125 $100 $75 $50 $25 $0 1Q07 2Q07 3Q07
Expansion
5.9x
4.0x
2.0x
3Q08 4Q08
Leverage
1Q09
Source: Company reports and J.P. Morgan estimates. Note: leverage based on net debt to trailing twelve month EBITDA.
Management Guidance
Table 2: Management Guidance
Total Revenue Cash Gross Margins Cash SG&A Expenses EBITDA Capital Expenditure Expansion On-going
Source: Company reports.
Source: Company reports and J.P. Morgan estimates. Note: 1Q09 results exclude a $5.8M reversal of a restructuring reserve and a $2.7M loss on an investment.
10
announced the acquisition of Virtu Secure Webservices B.V., a provider of network-neutral data center services in the Netherlands. The agreement provides Equinix with data center operations in the cities of Enschede and Zwolle, and by mid-2008, in Amsterdam.
Valuation
We are attracted to Equinixs business model and believe the company is best positioned among peers to cater to large network providers which are likely to create an increasing amount of IP traffic in the coming years. As a result, the company is poised to take market share in colocation services, providing highly visible revenue growth. Our December 2009 price objective of $72 is derived from a discounted cash flow analysis which employs an 8.9% WACC and a 8.0x terminal EBITDA multiple, which we believe is justified given the companys relatively attractive growth, access to liquidity to support its future growth strategy, and higher historical trading multiple.
Investment Risks
Downside risks to our rating include: Increasing competition. A number of other data center providers are investing heavily to expand their data center operations, including some operating in similar markets as Equinix. Increase supply could lead to less customer growth and potential pricing pressure, limiting Equinixs revenue growth opportunity. Capital Intensity. Increasing data center supply is a capital intensive business. Should demand fail to materialize to support ample utilization of newly added data centers, Equinixs growth could be lower than anticipated. Integration. Equinix recently completed two transactions which provide an entre into the European market. While lower margins in the European operations currently provide an opportunity for Equinix, the company must adapt to a different market environment and may not be able to realize planned operating efficiencies. In addition, the interconnection service is a much lower portion of revenue in Europe and Equinix may not be able to achieve expected revenue synergies
12
Company Models
13
2Q08
3Q08
4Q08
2008
1Q09
2Q09E
3Q09E
4Q09E
2009E
2010E
61.8 11.5 22.7 12.3 35.9 0.0 144.2 96.5 61.0% 62.3 39.4% 14.0 8.9% 3.4 (13.6) 2.0 0.0 5.9 0.5 8.0% 5.4 36.3 37.3 $0.15 $0.15
66.1 10.9 25.9 17.0 38.8 0.0 158.7 106.0 61.6% 69.1 40.2% 13.3 7.7% 2.4 (12.8) (0.9) 0.0 2.0 (0.3) -13.1% 2.2 36.6 37.8 $0.06 $0.06
70.6 12.1 24.1 12.6 42.1 0.8 162.2 113.1 61.6% 76.2 41.5% 21.5 11.7% 0.4 (13.9) (0.5) 0.0 7.6 0.2 2.5% 7.4 37.0 37.9 $0.20 $0.19
66.2 15.7 24.6 13.1 44.1 2.3 166.1 124.5 65.3% 81.8 42.9% 24.6 12.9% 1.1 (14.7) 0.7 0.0 11.6 (104.9) -900.7% 116.5 37.3 43.7 $3.13 $2.74
264.7 50.2 97.3 55.1 160.8 3.1 631.3 440.0 62.4% 289.3 41.1% 73.4 10.4% 7.4 (55.0) 1.3 0.0 27.1 (104.5) -385.7% 131.5 36.8 43.7 $3.58 $3.31
71.9 10.6 25.3 11.5 42.0 (5.8) 155.5 127.3 63.9% 97.2 48.8% 43.7 21.9% 0.9 (13.5) (4.1) 0.0 27.1 11.6 42.9% 15.5 37.9 38.7 $0.41 $0.40
76.5 12.6 26.8 16.2 47.9 0.0 180.1 132.9 63.5% 93.4 44.6% 29.3 14.0% 0.9 (14.1) 0.8 0.0 16.9 7.3 43.0% 9.6 38.1 38.9 $0.25 $0.25
81.3 15.1 27.6 17.0 48.0 0.0 189.2 137.3 62.8% 94.6 43.3% 29.5 13.5% 1.1 (14.1) 0.8 0.0 17.3 7.4 43.0% 9.8 38.3 39.1 $0.26 $0.25
87.3 16.2 30.5 18.3 50.8 0.0 203.1 146.6 62.7% 99.9 42.7% 30.9 13.2% 1.2 (14.0) 0.8 0.0 18.9 8.1 43.0% 10.8 38.5 39.3 $0.28 $0.27
317.1 54.6 110.2 63.0 188.7 (5.8) 727.9 544.1 63.2% 385.2 44.7% 133.4 15.5% 4.1 (55.6) (1.9) 0.0 80.1 34.4 43.0% 45.7 38.2 39.0 $1.20 $1.17
355.9 73.0 127.4 74.7 218.3 0.0 849.3 645.7 64.5% 445.3 44.5% 152.2 15.2% 2.2 (54.1) 3.0 0.0 103.3 42.4 41.0% 61.0 39.3 40.3 $1.55 $1.51
14
0.4 0.5 55.5 7.5 63.0 115.6 10.0 125.6 (62.7) 0.0 (62.7) 37.8 0.0 (23.2) 12.7 6.8 (28.6) (1.2) (29.8)
0.4 (1.2) 58.0 7.0 65.0 72.6 11.9 84.5 (19.5) 0.0 (19.5) 30.4 0.0 0.0 (131.8) 11.6 (109.3) (0.4) (109.7)
0.4 1.8 65.0 (1.6) 63.3 81.9 13.5 95.4 (32.1) 0.0 (32.1) 19.6 0.0 0.0 13.0 6.8 7.3 2.2 9.6
2.3 1.6 178.8 (103.1) 75.7 98.1 67.5 165.6 (89.9) 0.0 (89.9) 30.1 0.0 0.0 32.1 0.7 (27.0) 4.7 (22.3)
3.6 2.7 357.2 (90.2) 267.0 368.2 102.9 471.1 (204.1) 0.0 (204.1) 117.8 0.0 (23.2) (73.9) 14.1 (169.4) 5.4 (164.0)
0.0 (3.1) 68.3 18.4 86.7 64.7 10.3 75.0 11.7 0.00 11.74 (7.4) 0.0 0.0 (2.9) 3.8 5.2 (3.4) 1.8
0.4 0.0 75.9 10.0 85.9 93.0 20.0 113.0 (27.1) 0.0 (27.1) (32.3) 0.0 0.0 0.0 8.0 (51.4) (0.0) (51.4)
0.4 0.0 77.1 10.0 87.1 68.0 13.0 81.0 6.1 0.0 6.1 0.0 0.0 0.0 0.0 8.0 14.1 (0.0) 14.1
0.4 0.0 82.1 (15.0) 67.1 70.0 14.0 84.0 (16.9) 0.0 (16.9) (18.7) 0.0 0.0 0.0 8.0 (27.6) (0.0) (27.6)
1.1 (3.1) 303.4 23.4 326.8 295.7 57.3 353.0 (26.2) 0.0 (26.2) (58.4) 0.0 0.0 (2.9) 27.8 (59.7) (3.4) (63.1)
1.0 0.0 363.0 (30.0) 333.0 262.5 60.2 322.7 10.4 0.0 10.4 (50.0) 0.0 0.0 0.0 30.0 (9.6) (2.0) (11.6)
15
3/31/08 Assets Current assets Cash and cash equivalents Short-term Investments Accounts receivable - net Prepaid expenses & other current assets Total current assets Long-term investments Property and equipment, net Goodwill Debt issuance costs, net Other assets Total assets
12/31/07
12/31/06
$222 30 60 45 357
$291 93 60 0 444
$83 49 27 8 166
0 180 2,417
21 44 2,145
3 14 772
Liabilities and shareholders' equity Current liabilities Accounts payable and accrued expenses Accrued PP&E Current portion of accrued restructuring charges Current portion of debt, credit facilities and CLO Current portion of mortgage payable Other current liabilities Total current liabilities
79 53 0 0 52 72 256
65 77 12 1 11 36 202
27 23 13 2 2 10 78
Accrued restructuring charges, less current portion Debt facilities and CLO, less current portion Mortgage payable Convertible subordinated debt and secured notes Deferred rent and other Total liabilities Shareholders' equity Preferred stock Common stock Additional paid-in capital Deferred stock-based compensation Accumulated other comprehensive income Accumulated deficit Total shareholders' equity Total liabilities and shareholders' equity
Source: Company reports and J.P. Morgan estimates.
28 93 97 86 35 417
16
49.4% 6.0%
52.2% 4.8%
23.0% 6.6%
20.8% 2.0%
20.8%
19.6% 4.9%
17.7% 3.2%
17.7% 4.5%
15.4% 2.5%
15.4%
14.5%
17.5 18.6
17.5 18.2
17.5 17.8
17.7 15.2
17.7 16.8
112.4% 81.5%
80.2% -9.9%
80.9% 5.2%
78.8% 4.0%
78.8%
2.7% 4.2%
42.6% 4.0%
40.9% 3.9%
40.1% 3.5%
40.1%
14.6% 2.5%
56,550 1,250
57,950 1,400
58,750 800
58,750 4,150
62,250 3,500
25.7%
68.9%
27,320
45,371
1.6% 2.1%
2.0% 2.0%
2.0% 2.0%
1.3% 2.4%
1.7% 2.1%
1.5%
Revenue (U.S. and Asia Pacific) Colocation Interconnection Managed Service Rental Recurring Revenue Non-Recurring Total Revenue Revenue Breakdown Colocoation Interconnection Managed Service Rental Recurring Revenue Non-recurring revenue Total Revenue Reported revenue/wgt avg cabinet billing y/y growth Recurring revenue/wgt avg cabinet billing y/y growth q/q growth
74.2% 17.5% 3.6% 0.2% 95.5% 4.5% 100.0% $1,603 7.0% $1,592 -7.7% 0.7%
75.5% 17.0% 3.2% 0.1% 95.8% 4.2% 100.0% $1,650 7.7% $1,659 7.0% 4.2%
75.2% 16.6% 2.9% 0.1% 94.8% 5.2% 100.0% $1,654 5.8% $1,652 5.6% -0.4%
77.2% 16.4% 2.7% 0.1% 96.4% 3.6% 100.0% $1,689 6.8% $1,711 8.2% 3.6%
75.6% 16.9% 3.1% 0.1% 95.6% 4.4% 100.0% $1,649 6.8% $1,538 -4.0%
78.1% 15.7% 2.7% 0.1% 96.6% 3.4% 100.0% $1,740 8.5% $1,739 9.2% 1.6%
$1,780 15.7%
17
Appendix
Equinix at a Glance Figure 8:Recurring Revenue & Growth
$225M $200M $175M $150M $125M $100M $75M $50M $25M $0M Rec. Rev Grow th 2Q07 87.9 35.1% 3Q07 99.3 42.0% 4Q07 131.6 72.2% 1Q08 150.4 85.9% 2Q08 163.4 85.9% 3Q08 173.5 74.8% 4Q08 182.8 38.9% 1Q09 191.3 27.2% 35.0% 25.0% 75.0% 65.0% 55.0% 95.0% 85.0%
30.0%
Blb Cab Ut Rt
Source: Company reports and J.P. Morgan estimates. Note: Beginning in 1Q09, results include European operations.
18
26%
24%
13%
11%
63%
63%
U.S.
A sia-P acific
Euro pe
U.S.
A sia-P acific
Euro pe
1Q 0 9
18%
9%
13%
69%
74%
US
A sia-P acific
Euro pe
US
A sia-P acific
Euro pe
19
Asia-Pacific
Interco nnectio n 9%
Co lo catio n 82% Interco nnectio n 1 8% M anaged infrastructure 0% Rental 0%
Co lo catio n 77%
Europe
TMRK
DLR
EQIX
SDXC
SVVS
RAX
DFT
20
Price 4/29/09
25.52 30.41
52-Week Range
41-21 40-23
2008 Return
-31.4% -22.4%
Shares Out
5,920 2,841
Dividend
1.64 1.72
Yield
6.4% 5.7%
Market Cap
151,078 86,395
Net Debt
70,538 64,782
N - NA
3.68
6-2
-48.1%
1.1%
1,705
0.32
8.7%
34%
6,273
12,801
17,802
72%
N - $9.00 OW - $11.00
7.14 8.33
13-5 15-6
-31.3% -29.3%
-18.3% -9.5%
310 437
1.00 1.00
14.0% 12.0%
78% 61%
2,213 3,641
4,562 5,086
6,775 8,635
67% 59%
OW - $11.00 UW - NA N - $8.00
46 1,606 148
0.84 -
4.9% -
44% -
OW - $72.00 N - $7.00
44 35
3.1%
3,076 406
914 171
3,990 577
23% 30%
Company
2010E
10.9x 10.8x
2010E
0.9x 0.9x
2008
124,027 97,096
Financial Highlights and Profitability Revenue Revenue Growth 2009E 2010E 09E/08 10E/09E
122,488 108,630 120,507 110,192 -1.2% 11.9% -1.6% 1.4%
Diversified Global Carriers AT&T Verizon Communications ILECs Qwest Communications Int'l Rural Carriers Frontier Communications Co. Windstream Corp. Competitive Carriers Cogent Communications Level 3 Communications, Inc. tw telecom Wireless Carriers Clearwire (CLWR) Leap Wireless (LEAP) MetroPCS (PCS) Ntelos (NTLS) Sprint Nextel (S) Wireless Towers American Tower (AMT) Crown Castle (CCI) SBA Communications (SBAC) Data Centers Equinix (EQIX) Switch & Data (SDXC) S&P 500
$0.43
$0.36
$0.28
8.6x
10.2x
13.4x
0.7x
0.7x
1.2x
13,475
12,542
11,934
-6.9%
-4.8%
$0.58 $1.04
$0.59 $0.88
$0.62 $0.83
12.3x 8.0x
12.2x 9.4x
11.5x 10.0x
1.0x 0.7x
0.8x 0.6x
1.0x 0.9x
2,237 3,172
2,115 3,067
2,006 2,982
-5.4% -3.3%
-5.2% -2.8%
NM NM NM
NM NM NM
34.9x NM NM
NM NM NM
NM NM NM
3.0x NM NM
NM NM 23.2x 12.0x NM
NM NM 1.5x 0.8x NM
NM NM NM
NM NM NM
42.8x 29.1x NM
NM NM NM
NM NM NM
3.7x 2.5x NM
21.2x NM 12.2x
NM NM 15.4x
1.7x NM 1.0x
NM NM 1.0x
705 172
861 207
1,002 246
22.2% 20.8%
16.3% 18.9%
Rating Key: O = Overweight, N = Neutral, U = Underweight (1) Adjusted EV excludes a value for investments that do not contribute to revenue and EBITDA. (2) Free cash flow before dividends. Free cash flow excluding impact of discretionary capital expenditures for towers.
21
Company
2008
42,945 23,842
2010E
43,412 26,521
2009E
16,133 7,222
2010E
15,785 6,084
Diversified Global Carriers AT&T (T) Verizon Communications (VZ) ILECs Qwest Communications Int'l (Q) Rural Carriers Frontier Communications Corp. (FTR) Windstream Corp. (WIN) Competitive Carriers Cogent Communications (CCOI) Level 3 Communications, Inc. (LVLT) tw telecom Wireless Carriers Clearwire (CLWR) Leap Wireless (LEAP) MetroPCS (PCS) Ntelos (NTLS) Sprint Nextel (S) Wireless Towers American Tower (AMT) Crown Castle (CCI) SBA Communications (SBAC) Data Centers Equinix (EQIX) Switch & Data (SDXC)
4,545
4,322
4,042
-4.9%
-6.5%
1,439
1,616
1,360
12.3%
-15.8%
25.8%
21.7%
1,213 1,646
1,134 1,521
1,069 1,472
-6.5% -7.6%
-5.8% -3.3%
451 764
399 713
334 666
-11.5% -6.6%
-16.2% -6.6%
18.0% 19.6%
15.1% 18.3%
60 1,022 399
77 1,023 416
94 994 440
18 (55) 31
37 112 61
62 108 77
106.0% NM 96.8%
9.1% NM 4.5%
NM NM NM 54.1% 23.0%
NM NM NM 2.2% 54.6%
NM NM NM 11.3% 23.3%
NM NM NM 11.6% 36.0%
292 57
379 72
445 88
29.7% 28.2%
17.4% 21.9%
(204) (109)
(26) (19)
10 21
-87.2% -82.9%
-139.6% NM
-0.9% -4.6%
0.3% 5.1%
Company
2010E
2010E
Access Line Metrics EV/Line or EV/Sub Access Lines (MM) 2009E 2010E 2009E 2010E
Diversified Global Carriers AT&T Verizon Communications Diversified Global Carriers Qwest Communications Int'l Rural Carriers Frontier Communications Co. Windstream Corp. (WIN) Competitive Carriers Cogent Communications (CCOI) Level 3 Communications, Inc. (LVLT) tw telecom Wireless Carriers Clearwire (CLWR) Leap Wireless (LEAP) MetroPCS (PCS) Ntelos (NTLS) Sprint Nextel (S) Wireless Towers American Tower (AMT) Crown Castle (CCI) SBA Communications (SBAC) Data Centers Equinix (EQIX) Switch & Data (SDXC)
1.8x 1.5x
1.8x 1.3x
1.8x 1.3x
5.1x 5.9x
5.1x 5.5x
5.0x 5.3x
9.4x 12.0x
9.6x 14.2x
49.0 32.3
42.8 28.9
4,448 4,371
5,091 4,890
1.3x
1.4x
1.5x
3.9x
4.1x
4.4x
3.9x
4.6x
10.2
8.9
1,742
2,002
3.0x 2.7x
3.2x 2.8x
3.4x 2.9x
5.6x 5.2x
6.0x 5.7x
6.3x 5.9x
5.5x 5.1x
6.6x 5.5x
2.1 2.9
1.9 2.7
3,267 3,011
3,566 3,197
NA NA NA
NA NA NA
NA NA NA
NA NA NA
NM NM NM 8.8x 4.3x
5.7x 3.4x
4.6x 2.8x
4.0x 2.3x
13.6x 10.2x
10.5x 8.0x
9.0x 6.5x
NM NM
296.5x 19.7x
58.8 14.0
62.3 14.8
67,917 41,194
64,099 39,101
(1) Adjusted EV excludes a value for investments that do not contribute to revenue and EBITDA. (2) Free cash flow before dividends. Free cash flow excluding impact of discretionary capital expenditures for towers.
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Notes:
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Notes:
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Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analysts compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report.
Important Disclosures
Market Maker: JPMSI makes a market in the stock of Equinix. Client of the Firm: Equinix is or was in the past 12 months a client of JPMSI. Investment Banking (next 3 months): JPMSI or its affiliates expect to receive, or intend to seek, compensation for investment banking services in the next three months from Equinix.
Source: Reuters and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage Nov 26, 2008. This chart shows J.P. Morgan's continuing coverage of this stock; the current analyst may or may not have covered it over the entire period. J.P. Morgan ratings: OW = Overweight, N = Neutral, UW = Underweight.
Explanation of Equity Research Ratings and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] The analyst or analysts teams coverage universe is the sector and/or country shown on the cover of each publication. See below for the specific stocks in the certifying analyst(s) coverage universe.
Coverage Universe: Mike McCormack, CFA: AT&T Inc. (T), American Tower (AMT), CenturyTel, Inc. (CTL), Clearwire (CLWR), Cogent Communications (CCOI), Crown Castle International (CCI), Embarq Corp (EQ), Equinix (EQIX), Frontier Communications Corp (FTR), Leap Wireless International (LEAP), Level 3 Communications, Inc. (LVLT), MetroPCS (PCS), NTELOS Holdings Corp. (NTLS), Qwest Communications (Q), SBA Communications (SBAC), Sprint Nextel (S), Switch and Data (SDXC), Verizon Communications (VZ), Windstream Communications (WIN), tw telecom inc. (TWTC)
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J.P. Morgan Equity Research Ratings Distribution, as of March 31, 2009 Overweight (buy) 35% 54% 35% 75% Neutral (hold) 46% 54% 51% 73% Underweight (sell) 19% 42% 14% 57%
JPM Global Equity Research Coverage IB clients* JPMSI Equity Research Coverage IB clients*
*Percentage of investment banking clients in each rating category. For purposes only of NASD/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category.
Valuation and Risks: Please see the most recent company-specific research report for an analysis of valuation methodology and risks on any securities recommended herein. Research is available at http://www.morganmarkets.com , or you can contact the analyst named on the front of this note or your J.P. Morgan representative. Analysts Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which include revenues from, among other business units, Institutional Equities and Investment Banking.
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