Insights Into Equinix Financials and Operations

The beauty of publicly traded telecom infrastructure companies is that they cannot shroud their business in secrecy. Below is a very high level breakdown of Equinix revenues over the last several years. In 2023 the company got $1.9 billion from interconnection, which is its euphemism for cross connects. It comprised 19.4% of 2023 revenues. I must confess I am bit puzzled by how slowly the cross connect revenues are growing because Equinix offers no volume discounts (in Europe even big long haul carriers get only a few Euros off) to anybody. Moreover, Equinix is indispensable in many cities like Zurich, London (Slough, UK), and Amsterdam (AM5 is the best single peering point in the city). A 3Q2024 investor presentation says the company has 478,000 total interconnections. Let's assume each is a cross connect. That implies $3,974 USD per year or $331 per month, which seems too low. I invite readers to comment if they have an idea of what explains the discrepancy between the standard $500 a month list price and the average revenue per month figure of $331. However, there is a category called virtual interconnect that is probably much cheaper than the standard physical cross connects. This might drag down the average. 

I suspect the collocation figure does include power. Equinix lists utilities as composing 28% of cash operating expenses (this excludes non-cash adjustments like depreciation). Most of the 28% figure is probably power with the balance being water for cooling. Utilities are a steady 15% of total . revenue from year to year. A pretty good performance. 

Equinix is a money printing machine. Its 2023 dividends were $1.7 billion. Unfortunately, my favorite financial, net operating margin, is not in the investor presentation. Instead, the Equinix finance team focuses on EBIDTA which I find less useful. Gross margins are high at 65% of revenue. But this is typical of a well managed real estate business. The great differentiator from other kinds of real estate is what I call the Hotel California (Eagles song) effect, namely you can check in, but never check out. Customer churn is under 1% whereas churn rates for US apartments has been estimated to be well over 30% per year. That's what makes data centers such a great business. Customer switching costs are extremely high and the network effect (the more customers the more desirable the data center) dominates everything else. Certain data centers become focal points in the telecom ecosystem.