An Up-and-Comer in the Data Space

 | Jun 06, 2012 | 10:30 AM EDT  | Comments
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EQUIX

Quiet a second. Hear that hum? That's the sound of your computer as it quietly yearns to be in the company of the rest of its clan in a room of its own, with all the latest electrical connections and the fastest path to the heart of the Internet.

If you are part of a medium-sized company in Europe, your machine may already have such a room, and it could be in a space managed by InterXion Holding (INXN), a European provider of shared co-location data centers and managed services.

A co-location data center is, in essence, a facility built to house IT and other essential telecommunications equipment. The buildings are often designed to provide adequate cooling to control the specific temperature and humidity needs of the servers and networking equipment they house. A company may use a third-party data center for data backup and disaster recovery, or often as a means to reduce in-house IT staffing needs.

InterXion, a classic emerging-growth company with great prospects, operates carrier-neutral data centers. That means it's a full-service provider, offering not only an offsite location for clients to store their equipment but also network monitoring, remote equipment monitoring, systems support and access to multiple telecommunications networks.

The company has been in operation since 1998, and it is one of the largest firms of its kind, with 28 centers in 11 countries serving more than 1,200 customers and 400 different carriers.

David Ruberg has served as chairman since 2003 and chief executive since 2007. Before joining the firm, he led the telecommunications company Intermedia Communications, and he previously worked for AT&T Bell Labs.

Researchers at International Data Corp. say that more than 80% of data-center capacity in Europe is made up of in-house data centers. An example of this would be companies such as Microsoft (MSFT) and Google (GOOG) managing their own centers, both on-site and off. Other data centers include wholesale IT service centers and carrier-operated centers such as those run by AT&T (T) and Verizon (VZ). Smaller and mid-sized companies often reach out to firms like InterXion to help manage their offsite networking facilities.

Depending on the need, clients can purchase cages within a room or entire suites to house their equipment, and the firm generates most of its revenue from the amount of floor area utilized or the amount of power used. For years, data centers operated much the same way a rental owner might, treating clients like tenants and tying revenue strictly to square footage.

In recent years however, pricing has begun to move toward a power-based structure, where clients are charged on the basis of the amount of power they utilize, similar to the way that utility providers handle residential electricity rates. Both floor-area and power-based revenue are recurring in nature and make up more than 90% of InterXion's total sales.

Geographically speaking, the company refers to France, Germany, Netherlands and the U.K. as the Big 4, and these regions account for 60% of sales, with the rest of Europe making up the remainder. The company's data-center utilization rate is 75%, and it has been able to experience double-digit organic revenue growth the last several years.

Typical contracts for InterXion are three to five years in length, with price adjustments at the end of each period that are the greater of either 3% or the rise in the Consumer Price Index. Additionally, should energy prices increase significantly, the firm can adjust prices in between contract renewals for power-based clients, giving it better control over its operating margins.

Expansion has been extremely aggressive. InterXion has deployed 25 new data centers and expansions since 2007 as data-center demand in Europe remains strong despite economic concerns.

 

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The firm is headquartered in Amsterdam, and it went public in early 2011. Shares trade on the NYSE and are up nearly 30% this year alone. Despite the run-up, InterXion still trades at a value proposition to its peer group, such as Rackspace (RAX) and Equinix (EQIX) in the U.S.

Shares have come down $4 in the past month, so it may be time to consider them, but to ensure that more risk has been squeezed out, you may wish to lay your trap for the stock at around $13.50.

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