Equinix Earnings: Relief Regarding Accounting Practices Outweighs Mundane Results and Guidance

Equinix finally reported first-quarter earnings and shed favorable light on its accounting practices. The stock had been cratering over the past two months. In March, a short-seller alleged Equinix misclassified recurring capital expenditures and factitiously boosted adjusted funds from operations. Equinix then received a subpoena from the United States Department of Justice. It commenced an independent investigation while silently letting its typical first-quarter earnings day pass, which we think alarmed the market. Equinix abruptly released tepid first-quarter results on May 8, but it said it concluded its internal investigation, which found the firm’s financial reporting has been accurate. This resulted in what we believe is a relief rally. Our outlook has not changed, as the time value of money causes our fair value estimate to rise to $710 from $700.