Last week brought an increase in activity across digital infrastructure sectors, likely due to the International Telecoms Week (ITW) conference. With news from NFT's to several subsea developments and yes—another data center exiting the public markets via acquisition.
Earnings season is winding down, a few investor days took place and one was even postponed.
In a note to clients, Daniel Ives of Wedbush wrote a brief summary of the current environment that I thought was worth sharing:
Let’s call it like it is: it’s probably the most complex macro backdrop in a 100 years. The world economy and consumers coming out of a once in a century pandemic, once in a fifty year supply chain disaster, raging war in Ukraine, sky high inflation, Fed chasing from behind, black box/machine algorithmic trading, and the cherry on top of the sundae is a social media world where all data points are microanalyzed by millions and can influence markets quickly in seconds…
In a nutshell, this is not a Dot-com Bubble 2.0 in our opinion, it’s a massive over correction in a higher rate environment that will cause a bifurcated tech tape with clear HAVES and HAVE NOTS of tech. Will there be the Pets.com, Webvan, Worldcom, and Global Crossings of 2022? Sure there will be many tech and EV players that go away or consolidate, but we pick the winners from our vantage point. All risk assets are selling off in tandem, which is why in this note we put together our Wedbush Tech Playbook to use this deleveraging and degrossing historic sell off to pick up the best disruptive tech names and what we view as near trough multiples.
Finally, it’s kind of crazy, but after writing Foundations for 6 years I created a LinkedIn page, so please click, visit, and follow for support, but most importantly share it with your friends and colleagues. I’ll be dropping exclusive content that won’t be on www.foundations.email or sent via email in the future that you won’t want to miss. Head over to LinkedIn now and give a follow.
Let’s get into this week’s update.
Your Weekly Briefing
Quick Hits: What happened last week?
- Akamai launched an NFT currently being auctioned off at Artano with bidding starting at 16400 ADA/Cardano, roughly $9000 (No bids have been made at time of writing) ¯\_(ツ)_/¯
- Fastly postponed investor day after recently announced CEO departure
- NYI is acquiring former Equinix NY8 space in 60 Hudson according to several customers who shared messages they received from NYI sales staff
- Rackspace announced the company is exploring strategic alternatives Link
- GTT is rolling out 400G across its network with the initial phase expected to be completed the second half of 2023 Link
- Quantum Loophole signed its first customer; selling land, power, and water to Aligned Data Centers Link
- Switch is being taken private via acquisition by DigitalBridge and IFM
- Unitas Global acquired the network business and assets of Internap (INAP)
- Subspace has shut down
- Cloudflare announced D1 SQL database and advanced R2 object storage to open beta
News from the Universe of Cloud, Connectivity, and Data Centers
Wasabi expanded its storage cloud platform to Sydney, deployed inside Equinix and leveraging Equinix Fabric and Metal. Sydney is its 11th global region with Singapore on the way as its 12th. Link
AMS-IX and HGC launched a new internet exchange in Singapore with its first location deployed in Equinix SG1. Link
PacketFabric expanded its network-as-a-service platform, adding 8 new locations across North America and Europe including Toronto, Atlanta, Kansas City, St. Louis, Omaha, and Frankfurt. Link
Telxius partnered with NIC.BR to expand the IX.BR Salvador exchange point to its Cable Landing Station (CLS) in Salvador de Bahia Link
Telstra detailed its joint venture with Converge and business expansion in the Philippines. Link
Arcadian Infracom signed its first major customer with the sale of multiple fiber pairs on its Phoenix to Salt Lake City route to a broadband provider. In the same PR, the company announced it has received the required easement from the Bureau of Indian Affairs to construct its first fiber route through the Navajo Nation. Link
Digital Realty acquired land for its market expansion into Barcelona, Spain. Link
Evoque and new-ish company Archer Datacenters have formed a joint venture to build a hyperscale data center campus with over 100 MW of power capacity and more than 500K SQ FT of space in Tennessee, not far from Gallatin, where Meta/Facebook has a data center presence. Link
1547 expanded its Orangeburg, NY data center, bringing 2 MW online with an additional ~17,000 SQFT of space. Link
CoreSite added new automation capabilities and virtual routers to its Open Cloud Exchange platform. Link
DC-BLOX will build a new Cable Landing Station (CLS) in Myrtle Beach, SC with up to 15 MW of power capacity, with a target completion in the second quarter of 2023. The company did not disclose an anchor customer or subsea cable system that will terminate in the facility. It did, however, say the facility will be equipped with 5 bore pipes for cable entrances into the facility and is positioning the CLS as ‘Hyper-scale friendly” and that it is being developed “in partnership with global hyperscale partners”. Google’s Firmina subsea cable is slated to land in Myrtle Beach, SC, connecting to Las Toninas, Argentina, w/ landings in Praia Grande, Brazil, and Punta del Este, Uruguay. Google has operated its own data centers in South Carolina just south of Myrtle Beach in Berkeley County since 2007, making it likely Google is the primary partner behind the CLS. In addition, Confluence Networks is planning a subsea cable to connect markets with cable landings on the Eastern US. Map | Link
Flexential announced a partnership with Angola Cables to extend access to Google’s Monet subsea cable from their Ft. Lauderdale data center as well as provide access to the SACS cable system. Map | Link
Telstra announced the Southern Cross NEXT subsea cable system connecting Australia, New Zealand, the Pacific Islands, and Los Angeles will be ready for service in July 2022. Link
Globalinx will build four new bore pipes in Virginia Beach to augment the current capacity which is full, extending conduit to the Globalinx CLS in the Corporate Landing Business Park. Link
Maple Leaf Fiber, a joint venture between Crosslake Fiber and Metro Optic has dropped plans for a wet segment of the route due to a shortage of cable ships, and will now build a terrestrial route instead. Link
Uniti announced it will develop an optical network to connect key cable landing’s in the US from Jacksonville, Boca Raton, and Miami, FL up through Atlanta, to Virginia Beach and Northern Virginia. Link
1Q22 Highlights - Cyxtera, Starry
Starry held its first earnings since becoming a public company via SPAC, reporting revenue of $7.4M, up 63% y/y, and a widening net loss of $53.6M, and Adj,. EBITDA loss of $28M. Cost of revenue increased 45%,y/y, SG&A costs increased 77% y/y, R&D costs increased 38% y/y, Capex increased 67% y/y , and the ISP added 8,017 subs in the quarter, bringing its total subscriber count to 71,247.
Starry expects subscribers to pass 100K by the end of 2022 and revenue of more than $50M, which it says is contingent of receiving RDOF subsidies of $15M or more. I’m no RDOF expert, but it seems shady to count grant $ from the government as revenue, anyone have an opinion to share on this?
Cyxtera reported revenue of $182M, up 5% y/y w/ interconnection accounting for 11% or ~$20M, up 1% y/y. The company also announced that it has signed an agreement with Sify to enter India. Link
Cloudflare Investor Day, Connect, and Platform Week
Cloudflare held an investor day and user conference in New York last week along with Platform Week online—an innovation week where the company launches new features, solutions, and products several times a year.
The company launched new products and features including a few notable ones highlighted below:
- R2 Object Storage is now in open beta Link
- D1 SQL Database Link
- Magic NAT announced Link
- Pub/Sub Link
- Cache Reserve Link
- Open-Sourced Cloudflare Workers Runtime Link
- Workers for Platforms Link
There is plenty more you can read about over on Cloudflare’s infamous blog.
Platform Week Announcements
Cloudflare shared details around product attach rates in 2021 which include 81% of customers using 5+ products, 70% using 6+, and 58% using 7+ products. Going a bit further, Cloudflare said that more than 75% of contracted customers are using Application Services, 15% are using Workers, 10% Zero Trust, and 10% Network Services, which once again highlight the substantial opportunity ahead for Cloudflare.
Investor Day Materials
Switch’n It Up — DigitalBridge Acquires Switch Data Centers
After several reports from Bloomberg reporter Gillian Tan (Big track record, pay attention to her) regarding Brookfield and DigitalBridge being in talks to acquire Switch and later a PR from Switch postponing the earnings conference call until the next morning, it was finally announced in a press release on Wednesday that DigitalBridge Investment Management (IM) along with IFM Investors will acquire Switch for $11B including debt, (or $34.25/share) in an all-cash transaction. The deal values Switch at a multiple of ~30x NTM EBITDA, highlighting the valuations for data centers continue to rise with recent multiples for CoreSite of ~28x, QTS of ~25x and CyrusOne of ~24x NTM EBITDA...
READ FULL ANALYSIS
Internap (INAP) Sells Network Business to Unitas Global
Over the past few weeks DigitalAlpha has acquired Unitas Global and established a strategic alliance between two of its portfolio companies, PacketFabric and Unitas. Now, the investment shop has acquired INAP’s network business for Unitas, or Unitas acquired them with DigitalAlpha’s money, same thing and it doesn’t matter, it’s finally the end of the road for INAP, and a new day for Unitas...
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It’s Over—No More Trouble in Little Subspace
Last Friday, Subspace announced the company was shutting down. The company said in a statement on LinkedIn, that "effective May 13, 2022, Subspace will be shutting down its global network and business operations" and "Although our ability to execute on this vision faltered due to financial constraints, we still believe that the promise of web 3.0 and the Metaverse requires better connectivity than the public internet and that the vision of Subspace will be proven in the future"...
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