Wall Street Drought Ends for Hosting Companies

After a funding drought of more than two-and-a-half years, US web hosting companies are again raising money through public stock offerings. On Friday, Internet exchange operator Equinix Inc. raised $105 million by selling 5.5 million shares of common stock, with strong demand leading the company to issue 2 million shares more than initially planned. The Equinix sale, along with a $6.9 million initial public offering Nov. 10 by Access Integrated Technologies, marked the first public stock sales by American hosting specialists since Loudcloud's IPO in March 2001.

The stock sales end a lengthy period in which hosting and data center providers were frozen out of Wall Street following the collapse of the Internet and telecom bubbles. The disappointing IPO by Loudcloud was viewed by many as the last gasp of the dot-com boom. Bankruptcies of publicly-held companies like Global Crossing, WorldCom, Exodus Communications, PSINet and Metromedia Fiber only deepened investor disdain for telecom and hosting shares.

Sentiment began to change this spring with a rally in the tech-centric NASDAQ market, with battered hosting provider shares surging in price. One of the biggest gainers has been Equinix, which provides Internet exchange and peering services to help bandwidth-hungry companies expand and manage their networks. The Foster City, Calif. company's stock has risen from $3.39 a share on May 1 to $22.35 at Friday's close.

The turnaround at Equinix was driven by a complex series of deals at the close of 2002 that helped the company transform its balance sheet and expand into the Asian market. Equinix raised $35 million from ST Telemedia, executed a stock-for-debt swap to retire its junk bond debt, and acquired the assets of two hosting firms targeting the Asia-Pacific market, Pihana Pacific and i-STT.

In the past month Equinix has announced an expansion into a huge former Sprint data center in Silicon Valley, an expansion of hosting services it provides to Yahoo!, an agreement to host the Britannica.com web site, and an eight-site deployment by AboveNet. But a key element in the financial sector's enthusiasm for Equinix is the company's momentum selling to Wall Street itself. Last week the company launched the Equinix Financial Exchange, a service offering interconnections to accelerate electronic trading operations, several of which are hosted in its Chicago data center.

"Electronic trading exchanges continue to grow and currently account for more than half of all NASDAQ trades," said Peter Van Camp, CEO of Equinix. "As brokers, traders, clearinghouses and exchanges become more electronically connected, Equinix's centers have become critical hubs for these companies to link to each other."

The successful sale by Equinix is likely to be noted by managed hosting companies Rackspace and Inflow, which both filed for IPOs in 2000-2001 but postponed their plans when the IPO market stalled.