WSS: Recurring themes coming out of earnings season extends across sector segments; AI uptake flowing through ecosystem
Earnings season has moved quickly with most of the sector having already reported. Last week, we looked more closely at the managed infrastructure and cloud side of the game (webscale and neocloud) with DigitalOcean, Akamai and Rackspace reporting. In the past week, we delved into the rest of the peer group as Cloudflare, Fastly, GoDaddy and IONOS reported in recent weeks. The latter two companies are more SMB-oriented, but increasingly overlap with the webscale and managed infrastructure worlds. The data centre segment has a smaller group of listed companies, with Digital Realty and Equinix leading the way. But there are public companies with substantial data centre arms and they also reported in the past few weeks. We took a closer look at the results for American Tower’s CoreSite and Iron Mountain’s data centre division.
The results picked up on themes seen in the past few weeks of earnings season. Cloudflare and Fastly both saw some revenue growth acceleration, driven by the large customer cohort and adoption of add-on services. Meanwhile, CoreSite and Iron Mountain saw a healthy pace of growth consistent with expectations. There was some lumpiness given the timing of large enterprise and hyperscale deals and this has become more commonplace across the various different sector categories.This is less of an issue on the SMB side, but GoDaddy and IONOS were also boosted by add-on service uptake and their results showed progress in key KPIs like ARPU and NRR.
On the strategic side, there was another telco divestment of data centre assets. In Canada, Rogers Communications sold its data centre colocation business to InfraRad Capital Partners as it looks to pay down debt and focus on other business lines. The Rogers assets will now have backing that will invest capital in growth and expansion initiatives.
Capital continues to pour into the sector to fund infrastructure builds and the bar continues to rise to the point where self-funding from hyperscalers needs to be complemented with other strategies. Meta has started to look at partners and JVs for financing and recently set up a partnership with PIMCO and Blue Owl to finance a major $29b build in Louisiana, while continuing to raise capital for more builds. Look for this to be a sign of things to come from the hyperscale category.
We published our quarterly update last week and touched on a number of recurring themes, including the ongoing supply and demand imbalance, uptake in AI tools and services, and the steady levels of investment in data centre operating platforms and new company formation. The activity speaks to the long-term outlook of the sector and expectation for demand, which continues to be at the centre of discussion and debates. We continue to track the situation and while there are trends that merit close monitoring, no red flags have emerged that suggest there is an impending overbuild situation or bubble emerging on the horizon. In fact, the recent quarter saw signs that growth may start to accelerate as all indications are that the demand pipeline is fully stocked and existing customer expansions continue to track as AI drives value throughout the ecosystem spanning data centre colocation, cloud and interconnection. CapEx investment levels continue to be on the rise and are not being dialled down.
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