Equinix, Inc. (EQIX) Earnings Call Transcript & Summary

Well, thanks, and good afternoon, and welcome back to Citi's Global TMT West Conference. For those of you I haven't met in person, I'm Mike Rollins, and I cover the communications services and infrastructure sectors for Citi Research. Just for reference, we do have disclosures available on the conference registration site. I'd like to welcome back Charles Meyers, President and CEO of Equinix. Charles, happy New Year, and thank you for joining us today.

Thanks, Mike. Always great to be here, happy New Year to you as well.

Thanks. Well, in our past conversations, we typically start with just a sense of how you're seeing the year to come. So what are your strategic and operating priorities as you close the books on 2020 and look at the future for 2021?

Well, before we get started, Mike, I'm sorry, I don't get in trouble with my IR team. I'll read our disclosure. Some of what I will talk about today contains forward-looking statements. Please read our SEC filings for more information about factors that could affect these statements or riveting SEC filings if you're interested. So -- but getting back to your question, in terms of strategic priorities: one, I'm so proud of the team, I think, for navigating what was, I think, for us as a society, a very difficult and challenging 2020. And obviously, we still have ways to go. I think there's light at the end of the tunnel in terms of, hopefully, a return to a bit of normal life post-COVID, but I'm really proud of what the team delivered in 2020, and I'm really optimistic about what's ahead. In terms of our focus, a lot of the same focus areas that we had in 2020 other than dealing with a pandemic. I think -- and that is really continuing to scale our core business. I think our core retail interconnection-oriented co-location business continues to deliver terrific results. But I think we have work to do in terms of scaling our go-to-market motion further because I think the opportunity is growing even faster than we are, and I think we need to continue to adapt our go-to-market motion. Part of that is adapting our channel. Our channel is now contributing 30% of our bookings, and we really need to be a more channel friendly in terms of how we quote, order support, you know, all of those things. Our business was designed around a direct channel. And now with 30% of our bookings coming, we really need to focus on making some investments to scale that channel. And I think that is going to be a key driver for us in terms of operating leverage in the business as well as bookings momentum. Secondly, a platform transformation. I think we're continuing to make investments in the business around evolving our product portfolio to be more receptive to the digital transformation needs of today's customers. And so new products like Network Edge and now Metal, which we used M&A to accelerate that with the acquisition of Packet. So the platform transformation is going to be key. And then third, simplification and scaling in the business. We have to continue to invest in certain areas and find ways to drive greater efficiency in our business so that we can really get operating leverage in the business and hopefully drive long-term margin expansion while allowing us to reinvest in the business.

I hope to come back to all those points to just unpack a bit more of that. Before we do, just keeping it at a high level for a moment, when you look at demand for the core services that Equinix provides, can you give us an update of how you're looking at the different indicators or barometers for what this means for Equinix and the ability to grow over time?

Yes. I mean I think it's changed a little bit over the years, but at a baseline level, what we look at is the underlying drivers for digital demand, right? And I think we look at things like bandwidth consumption. And that -- we have real insight into that via our Internet Exchange, for example, as well as our -- the business that we do -- with the very, very comprehensive global network business that we do, things like how much data is being created, manipulated, moved, stored and all those things are growing at a very nonlinear rates. And so I think the underlying sort of leading indicators in terms of what the demand for digital infrastructure at large is going to be is one factor. Then I think we translate that into saying, okay, how is that going to translate into demand specifically for retail interconnection-oriented colo and where is that demand going to materialize. And I think in that case, we have the luxury of having such a broad global footprint today and being able to use real empirical evidence to assess fill rates across our platform that really informs our -- the confidence level we have in underwriting capacity expansions. And I think we've been very successful in that regard as a result. So I think those are some of the key things that we're looking at. And then in terms of -- as you're very familiar, we look at things like cabinet adds, MRR per cab as really the health of the business that helps us further update and inform our underwriting and our expansion plans.

We'll get our audience involved early in the conversation with our live survey questions. So if we can actually turn to survey question number two, we're going to go a little out of order here. What is the biggest threat to the financial results of retail-centric data centers over the next 3 years? This is something that we've considered before in our past conferences, and the choice is our competition, changes in cloud architecture, tech impacts, interconnection, greater power densities, higher SG&A or no immediate threat. And before we get to that discussion, Charles, if we could take another step back and just think about the pandemic. And if you can just frame for us what you're seeing in terms of changes in customer behavior. And if the second wave that some of the countries experiencing, if that creates any differences in the impacts to Equinix from what you previously described?

Yes. I mean I'll start with the latter part of that. At least we haven't seen, even with a bit of a second wave, as you described, in some portions of the country and other places around the world. We haven't really seen any meaningful shifts in customer behavior or any retrenchment back to some of the more acute phases of the pandemic that we saw in the March, April timeframe of last year. So -- but I do think that certainly, the pandemic has changed some tanks, right? The work-from-home dynamic is one that I think has been a substantial change, not only in terms of being an underlying demand driver for our business, in some cases, an acute one, but I think being a more durable trend that people are needing to architect around, and we're seeing that continue. And it's even changed how we need to think about our selling cycle. How do we sell into a virtual -- how do we sell a fully virtualized selling cycle, how do we do demand generation through primarily digital means rather than the traditional things that we used around events and in-person things and those kind of things. And so I think it's shifted that. Frankly, I'm very proud of our team, and I think they've responded well to that, but we haven't really seen a big shift in the recent months associated with this second wave in terms of -- and in fact, I would say we really gained a level of confidence around -- we did -- we had very limited concession requests during the course of the pandemic. We had put a big bad debt reserve on the books, which we actually reversed out last year -- last quarter, which was one of the things that led to such a strong quarter. And we're feeling confident that things have stabilized in that regard. But I think the most durable impact to the pandemic, Mike, is that this -- people are seeing that digital is the reality that we all face, right? And companies that are well positioned and have made investments to respond to a more digitally-driven world are outperforming those that haven't. And as a result, I think people are seeing digital transformation and those associated investments, in infrastructure as sort of nonnegotiable. And I think that's resulted in strong top of funnel activity for us and strong bookings in the business. And I think that's going to continue for us. Although I do think we always ask people to be cautious in that. I think the timing of that is over a protracted period. Digital transformation is a long-term journey for people, so it doesn't happen overnight.

Let's see the results of our first survey question. So 56% changes in cloud architecture, 22% competition, 11% tech impacts interconnection and 11%, no immediate threat. Charles, what are your thoughts on how to think about this?

I probably would have responded the same way because I think the way the question is phrased is in terms of retail-centric data centers. And if I looked at that as a sector, I do think that cloud architectures and the adoption of public cloud as a primary sort of place-to-place workloads over time does represent the most significant threat to the sector at large. I would say that we -- if you might have asked the question about Equinix specifically, I think it might look a little bit different because I think we have a very different position in terms of how we're seeing the sort of pretty significant shift to public cloud as an architect -- as a workload choice and the adoption of hybrid and multicloud as the architecture of choice manifest in our business. And I think in many respects, is a positive catalyst, both because we're an important piece of the underlying architecture of the cloud providers themselves and because we play a particularly interesting role given the depth of our ecosystem and our interconnection play. So I think it might be a little bit different for us, but I absolutely can resonate with the results.

And just look -- when we look at that survey, competition was 22%. Are you seeing competition get tougher after the recent rounds of consolidation and some of your competitors, whether it's increasing their focus on the international markets where you were in early or on the retail-centric markets, again, where you were early, but buying some scale players or in certain markets or regions and catching up?

I would say generally, Mike, that -- well, let me separate out, too, because I think the competitive landscape for our JV entities in the hyperscale space, is quite different than the competitive landscape for retail colo and particularly interconnection centric is when you get down, by the time you get down to that layer of not only retail, but interconnection-oriented retail, it's a much smaller competitive set. And in fact, there's really very few players who, I think, have a compelling value proposition in that area. And so we have -- I would tell you that I don't think we have seen a meaningful shift in the competitive landscape. I often get the question of whether in Europe, for example, whether the combination of digital interaction has changed the landscape. And I would say, no, not really. In fact, it probably changed it for a period of time while there were some uncertainty and dust in the air immediately after the acquisition. But I think it's back to kind of what I would have expected and no really meaningful shifts there. On the -- the hyperscale side, though, and our xScale JVs and the people with whom we would compete for that business, I think, is a little bit more dynamic. Because I think the people that you mentioned that are for expanding their international presence, for example, are people that are mostly focused on that space. And so I think that just means we need to continue to stay on top of our game. We are not a -- I wouldn't call us a share -- we're not after a big market share in the hyperscale space. What we're after is being able to serve the large footprint needs of targeted strategic partners and customers and do that in a way that extends our leadership in the cloud ecosystem. We, today, enjoy about a 40% market share of cloud ramps around the world. And I think being able to meet the hyperscale needs makes us -- is an important part of us continuing to extend those relationships. And so I think we're seeing some shift in competition, but I think that we're well positioned. I think we're very much a provider of choice for people as long as we continue to do the right things, and I think we still have work to do to make sure that we can deliver the capacity at the time and at the cost points that are needed, but I do think people are looking for Equinix as one of the players that they're going to be looking for in the hyperscale space and certainly in the retail space on the interconnection-oriented stuff.

Just a quick follow-up on that. From your comments, does that infer that maybe to win the business that you're going after there, you're getting maybe lower development yields than you originally anticipated just because things in hyperscale could be competitive?

In the hyperscale space, I would say, yes, that's true.

Yes, in that scale.

Yes. Yes, absolutely. In fact, if you look at what we kind of originally -- and I've been transparent with this, which is we were -- when we talked about this at Analyst Day, which I know you were there right there in the -- probably in the front row, or pretty close there somewhere. We're -- when we talked about launching the xScale initiative, we were saying low to mid-teens, kind of cash-on-cash yields and you are just not seeing much of that, right? I think you're down into the very low double digits and maybe even the high -- very high single digits as more cash-on-cash yields. And so I do think the competitive intensity of that market has resulted in now. I still think they're very attractive returns that are attracting capital into that, and our partners are excited about the return profile that we're looking at as are we as a minority equity holder, but yes, I do think that has impacted the landscape of that business.

We're going to move towards the fourth survey question on the list. Again, we're a little out of order, I apologize. The conference has always given us an opportunity to see what our audience thinks you're going to grow at for the upcoming year. So what will organic constant currency revenue growth be for Equinix for 2021? And the choices are less than or equal to 8%, 8% to 9%, 9% to 10% and over 10%. Responses are anonymous. We're just tracking the aggregate percentages and just to frame this for our audience; and Charles, stop me or correct me if I don't have this right, at the last Analyst Day, you were referencing the long-term annual revenue growth rate is 8% to 10% organic constant currency. And I think the current guidance for the midpoint of 2020 is about 8%.

Yes. Those are correct.

So as our audience thinks about that, one other question on the interconnection comments that you were making earlier. So can you talk a little bit more about what you're seeing in terms of the evolution and the diversity of the interconnection offerings, whether it's in the domestic business or in the international markets?

Sure. Well, I'll make a macro statement first, which is the health of our interconnect -- and performance of our interconnection business has been really strong over the course of 2020. We saw interconnection growth rates at 15% year-over-year. And in Europe, at 30% on a constant currency basis, driven in part by some of the pricing action that we've taken, and I think that's going to make for a tough compare year-over-year when we look into '21 and then 22% in APAC. So in both and strong market -- strong performance in Americas as well. And so we've -- it's really performed well. And not only is the volume there, unit volume has been good, pricing had -- we've actually -- has been very firm and actually upward trajectory in Europe because of our adjustments there. But we -- I think that -- I think we're in a position where the interconnection business is going to continue to perform well. And as to your question about diversity of that, we track that really closely. We look at the ANZN kind of population of our ecosystem, and we're seeing a real diversification to that. We have, for many years, the network-to-network dominated the landscape of our interconnection picture, but you're seeing now: one, that cloud is a very common sort of AN for a variety of sectors, and we're seeing diversity in terms of enterprise to cloud, enterprise to network and even enterprise to enterprise, all -- and so a lot more diversity and even went in the cloud landscape, it was really dominated by a small number of players and still is, to some degree, but we're seeing a much larger diversity of cloud interconnects. In fact, our average customers are now connecting to 3, 4, 5, sometimes even 10 different cloud destinations. And so I think the diversity of interconnection is growing nicely.

The other comment that I think the team made recently was about the percent of the interconnection revenues that are coming from the newer services that you've introduced versus the physical cross-connects. And can you speak a little bit to what's been happening on that side as well?

Yes, because the more virtualized interconnection services with ECX Fabric being sort of most prominent there, has been significantly over-indexing. And so now cross-connects, although still the majority at about 70% of the revenue is shrinking not because it's not growing well, it's just because the virtualized are growing at a much more rapid rate. And so ECX Fabric is up to 8% and is a $100 million business on a run rate basis right now, and we expect that to continue to outperform, just because I think it is really well positioned to be adaptive to the digital infrastructure needs of today's customers, but we also are continuing to see strength in cross-connects because it acts very much like -- I've talked about this before, Mike, where Internet Exchange, for example, is a feeder to cross-connects because people put traffic on the exchange, they reach a certain level of traffic between 2 counterparties and then they strip it off and into private interconnection via a cross-connects because it's so much more economic to do so. Similarly, I think people are now scaling their interconnection by using ECX Fabric to create a very flexible interconnection fabric. And then as they see high levels of traffic between counterparties, they strip that off in the same way on the physical cross-connects. So -- but I do expect that we're going to see that ECX Fabric will be an increasing proportion of the overall interconnect revenue picture.

Let's see what the survey reveals in terms of expectations for revenue in 2021. So we have 50% at 8% to 9%, 25% under 8% or equal to 8%, 9% to 10% is 17% and over 10% is 8%. So I have a few follow-up questions here. But Charles, do you have an initial reaction to how investors are looking at your growth?

I think in order to keep myself out of trouble, I'll have to say, that's interesting. Those are interesting results, Mike.

Well, maybe follow-up on that. And so when we think about some of the comments that you just provided around the tougher comps on European interconnection. And we think about just the base of revenue getting larger, whether it's from organic growth, development, acquisitions. And then on the other side of the coin, you've also talked about the demand environment. So when investors are thinking about forward growth, how important is it to just consider the changes that you described around interconnection and a larger revenue base versus are there some things that are potential positives that you would illuminate that might offset or augment that as people are just trying to contemplate that revenue growth range for Equinix?

Yes. And I think a lot of -- the answer to that question, really, part of it really revolves around what timeframe you're looking at, right, Mike. And I know this question was oriented around the year ahead, right? And so I think in those cases, it's -- there's -- you got to -- you've just got to balance these things. Over the longer term, I think that the growth prospects and when do we start to see material contributions from new service offerings like metal. When does Network Edge begin to scale more aggressively. And we're seeing the early phases of that, but I think we're still aways away from that in terms of materiality relative to growth. So I think you're -- perhaps the more -- in year is more dominated by these other factors in terms of it is just a -- it is a very big business on which we are growing, but the demand profile is good. We continue to put strong bookings on the board. The funnel looks great. I think we're going to be -- we talked yesterday about -- not yesterday, but last quarter about having a really strong funnel position even after a record bookings quarter. And I think that continues to be the position we find ourselves in. So I think that business is setting up for good solid growth. And over the long term, I think, has a number of catalysts that could continue to improve that picture.

I want to stick on the revenue side for a moment, but let's preview our next topic with one other survey question, which is the first survey question on our moderators' list here, which is, is Equinix destined to have a different asset mix in the future? And the answers are no, current retail-centric strategy with hyperscale minority investments is optimal; yes, to add scale enterprises or more markets; yes, to merge with a tower firm and expand the edge data center strategy; or yes, Equinix should add additional managed service and connectivity solutions. So we'll have our audience take a look at that and...

As people are answering that because I had this question when I looked at that one, when you say scale enterprise, are you talking about sort of enterprise wholesale type offer?

Yes.

Okay.

Yes. Great. So before we get there, just on the revenue side. So as you unpack what a mature U.S. business looks like versus the faster-growing international markets, are there some long-term rates or market rates that investors should be mindful of, just to help understand what a mature market looks like versus a faster-growing market might look like? And how many years do we have before maybe an international market looks more like a mature market?

Yes. Great question and very tough ones to answer, Mike, but I think we look at a couple of different things. If you look at our -- our stabilized assets represent kind of an interesting data point, right, which are -- those are fairly fully utilized mature assets, not all of which are in mature markets per se, but they're in more mature markets that is a bias in that direction. And we've typically -- last quarter, we had about 5% growth rate on the recurring revenue, which was pretty good. We've talked generally about a guidance range of 3% to 5% on those. So I think that's sort of an interesting pin to look at. The Americas business was below that for a period of time, impacted meaningfully by the growth drag that was there associated with transitioning the Verizon business into Equinix. And now I think having done that, we had said that we would get the Americas business back to a 5% type growth rate, which we did last quarter and are kind of in that spot now. I think there's additional upside for us there. Even in the U.S., which -- or in the Americas and the U.S., which dominates that picture, I think that there is continued upside for us. I think if our bookings engine continues to perform well, and we can work through -- we've been impacted to some degree by the churn, that hit us a bit in Q3. We were -- for the first time in a while, we were at 2.6%. We guided 2% to 2.5%, that was mostly a timing issue. But we were operating more at the high end of that 2% to 2.5% versus the low end, which is where we would prefer to be over time. And so I think if you're at the high end of that, that's going to really impact growth rates. And so -- but I think the most important lever that we have to pull to get us back towards the low end of that over time, is discipline in the strategy because our churn rates on well-interconnected footprints are very, very low. And in fact, if you look at Q3 and the 2 big churns we had were from deals that came into the system before we own those assets. And they weren't the type of thing that we would typically underwrite against. And so I think we just got to stay disciplined in the strategy. And I think that's going to be a key part of it. But I think that the -- the other markets -- I do think APAC is going to begin to move to the head of the class. I think in terms of generating higher growth rates. I just think the macro conditions in APAC are really strong, and I think we're going to continue -- and our competitive position is really strong. And so I think we're going to continue to see that. I think we'll probably see a moderation to some degree in Europe, but that's going to continue to be a good business, I think, meaningfully ahead of the rates of our stabilized assets. And so I think that's sort of the overall growth landscape that I would provide.

Let's see what our audience thinks about the asset mix at Equinix. So 63%. So Equinix needs to add scale enterprise solutions, 38% was no current strategy is optimal. And those are really the 2 choices that everyone selected.

Yes. It's interesting, Mike. What I would say is -- and again, I can't read the minds of the people who responded in the poll, but I would tell you how I looked at that one and the ad enterprise-scale solutions I would disagree with because that's really not an area of focus for us. We don't really -- we actually see significant pressure on the sort of enterprise wholesale market. And in fact, they tend to be workloads that are very subject to churn and the migration to the public cloud. And so the first one, unfortunately, you put both into that answer, and I would say no to the enterprise-scale solutions, but I would say, yes, to the additional markets. And I absolutely think we need to add additional markets. And so if people might have been responding that way, which is kind of how I would lean, that was the closest to the right answer, although I would say that we're not super excited about scale enterprise wholesale.

And when you say add additional markets, is that additional markets into new geographies or would that also include the market like the U.S. where you could densify into new cities, but inside this broader U.S. market?

Yes. Good question. I think I was referencing mostly more dots on the map in terms of new markets. Obviously, we put 2 important ones on the map for us with Mexico and India. We're now in 19 of the top 20 GDP markets around the world. And so -- and I think there's additional opportunities we've talked about, Africa, for example. We eventually need an entry on into the African continent. I think there's other geographies, including Southeast Asia and potentially some LatAm opportunities for us to grow. As to the densifying in existing markets with the U.S. in particular, I don't see that as a compelling need right now. And in fact, I think the strategy of geographic coverage in a more mature market like the U.S. would potentially look more far edge that it would tier 2 over time. And I think the -- our approach to that -- and that might be a question that we come to like a different topic, but I think our approach there would be potentially partnering with others who have that type of far edge real estate. So right now, I wouldn't see a big opportunity maybe very selectively, but in terms of additional fill-in markets, but not a key priority for us.

That's where I was going with the next question on the far edge. I'm curious if land grab almost develops for alliances and partnerships for data center firms to partner with towers or other assets that are much closer to the eyeballs and the devices that are going to want to take advantage of proximity, low latency, the 5G enablement. And just curious how you look at this and the importance of partnerships and alliances to get a healthy far-edge strategy for Equinix.

Yes. I absolutely believe that partnerships are going to be a central part of that picture. Not that we wouldn't entertain and even adapt our infrastructure approach to have owned assets that we might put at a far edge, but I think we're pretty selective in that, Mike. I don't think we're going to be one who says, "Hey, we need to hit these 10,000, we're going to build and deploy 10,000 things." We just -- I just don't see that. I see maybe very selectively saying, "would we -- are there certain far-edge opportunities where we would deploy an asset?" Yes, perhaps. But I think partnership will be key. And as to will there be a sort of a rush to do that and others to do it, I think there will. I think people will look at that as potentially an opportunity. One, I think it's going to play out over a longer period of time than people currently anticipate; and two, I think you have to -- the partners that are on both sides of this, have to ask the question, what did the partners uniquely bring to the table? And I think Equinix brings something very unique for vis-à-vis others because I think access back into an incredibly robust global digital ecosystem is going to be important as the far edge plays out. And so I think we bring something unique to those partnerships. And I think there were already -- those are already conversations we're having with players in that space. And people know that Tom's on our Board from American Tower. And I think there -- we've been comparing notes, if you will, about what we believe about the far-edge opportunity. And while we don't agree on everything, I do think that we see an opportunity that's there. And I think players like them have interesting assets that could come into play over time. And so we're looking at how we can partner effectively with them and others.

And on this topic, the more popular question I get from clients on this is just there a simple way to think about if there's this far-edge community of sites, locations that emerge, is it just purely incremental and separate from the retail edge that you provide? Is it actually accretive because in the hub and spoke, they might hub back to you before going off to somewhere else such that you actually add business from this? Or is it cannibalistic that if you put more stuff at the edge, they just need less of it in your facility? Is there just a simple way that you look at the far edge?

I think in any -- you can find a point example of any of those outcomes, Mike, I think. And so -- but what I would say is, on balance, I feel strongly that the answer is it's accretive. And -- well, I'll take that back. The first one, I think the separateness of it isn't really -- there is -- I think there are use cases that are more contained. In other words, that say there are devices, devices interact with a far-edge location, and they don't go back to a core location and so they're more distinct, but I think that's going to be more exceptional, more unique. And so I think that it's much more common for it to be accretive, meaning that there are some things that get done locally, but some things that need to go back to and interact with the broader ecosystem. And I think that is going to be the case most of the time, and therefore, I view it as complementary and additive to the overall position. And so I think what's going to happen is we're going to continue to build our more macro-edge strategy with the current digital edge being the primary place where places -- where people interconnect. And then as those far-edge use cases begin to adapt, we'll look to extend the reach of our fabric and of our platform out into that far edge, either via our own facilities or through partners.

And going back to some of the earlier comments that you made, if I'm remembering correctly, you talked about an investment to help enable the indirect channel to be a bigger contributor for you, and you talked about the ongoing modernization and investments, not just to help productivity, but also efficiency. And so as you think about margin potential. And I know you get this question off in the balance of margins versus revenue and the long-term goal to get the EBITDA margins above 50%, how close are we going to be in '21 to getting to that aspiration of over 50% margins? And is there a scenario where you may have to take a step back in margins to take 2 steps forward eventually?

Yes. I mean we've talked about that a lot, Mike, you're right. I do get that question a lot. And I think I've been -- we -- I and we have been pretty consistent in how we answer it, which is our objective is long-term value creation. And we see a lot of opportunities. And perhaps now more than ever, we see a lot of very NPV positive, very return-on-capital attractive opportunities for us to invest in the business. And so now part of -- some of those things are investments to say we're going to make investments now to drive efficiencies, which will fuel margin expansion in the core. And I think those are logical investments for us to make. And some of those are investments in future growth factors that expand our TAM and give us long-term highly NPV positive, highly accretive long-term opportunities. And so I think we -- every year, we look at and we balance where are we, what investment -- decisions do we believe we need to make. And I do think we have to balance it because I don't think you can take huge steps backwards. And I think you have to be in a position to say, "Hey, we're going to make the right types of investments in the things that we think are most attractive, we are going to maintain a commitment to margin expansion over time and then we'll figure out whether to reinvest those dollars or not." And so I think this year might be an even more complex picture than ever before. And I think that's in part because our business is bigger and more complex than it ever has been and things like the investments we talked about in the channel are things that we really feel need to be done. And this is -- it's probably a more dynamic time in the market than it ever has been in terms of how markets are shifting. And I think this is a time when market leaders need to make the adaptation to sustain their business and sustain their relevance. And I think that's the right move for us. And so it is a -- it's always a tough balance, but one that I think we've been pretty good at making, and we'll continue to bias towards long-term value creation.

And sticking on the subject of the investments in the indirect, it's now 30% of the bookings. How does that distribute globally? Is it all -- is it like equal in terms of indirect contributions by region? Or are the -- is that biased in one particular area and part of the opportunity is to try to balance that in other geographies?

It's a great question, Mike. I think I had had this previously, and I got it wrong, but we're not that far off of that in any of the regions. I think the Americas is slightly ahead of that number, but the others are pretty close. And so there's not a huge disparity in terms of where people are in terms of the percentage of the bookings that are going through the channel.

And as you think about capital allocation over time. Is there any change just based on internal structures and where assets sit in terms of how investors should think about the pace of capital returns through dividends or other actions that you might decide to take at some point?

No. Our dividend strategy is pretty consistent. We're -- our basic posture is that we're going to return 100% of the REIT taxable income back in the form of dividend. And right now, we're at a pretty low payout ratio, 43%. So I think there's upside opportunity for that over time, both in terms of just natural growth of the business as well as potentially as things -- additional entities move into the REIT, but we're in no hurry to do that. We're really doing -- we would only do that to adapt and make sure that we continue to meet our REIT tests, et cetera. So probably not a meaningful shift in our dividend. And in terms of capital allocation, I think, our first priority continues to be organic growth of the business, which is very, very strong. We've been selective about M&A, but very selective -- very successful when we have decided to act on it. And I think we'll continue to see some of those opportunities as well.

And with respect to the xScale initiative, did I see recently that you closed another one of the joint ventures? And can you give us an update of what investors should expect in the coming year in terms of new opportunities or expansion of the existing opportunities?

We did. We announced the Japanese JV with GIC as well, and we already have the Tokyo 12 asset well underway there and are excited about that opportunity. Obviously, when that moves into the JV, we'll repatriate some of the CapEx that we put into that off of our balance sheet today. But -- Japan is a big digital market and one that we have a great competitive position in, so we're excited about that opportunity. And yes, we absolutely have other JVs in the works, and we believe there's meaningful other geographies for us to extend into, and we think that will probably be with potentially a range of different partners over time. And so we're -- I think you're going to see us being more aggressive. I think we've kind of figured out a lot of the underlying complexity of getting these JV deals done and how we would operationalize it. And I think we're going to start to use some of the fee structure that's flowing back to Equinix as a way to resource that even more aggressively in the year ahead so that we can grow that business faster. And again, growing that business fast since we don't consolidate it, we're not growing that business really to drive revenue growth per se. We're doing it because we think that it's really accretive in terms of building our leadership in the cloud ecosystem. And so we -- I think Krupal is doing a great job in terms of his leadership of that business. And as I said, I think we're going to see us put our foot down on the accelerator a bit more in the coming years ahead, and there'll be more geographies and more JVs and more partners.

And as you look at the internal development that you're going to do, whether it's in existing markets or new markets, what's the complexion look like for 2021? Is it a similar type of year versus 2020 in terms of the kind of quantum of activity or with the demand in the pipeline you're seeing to use your term accelerator? Do you choose to step on it this year?

I think it's going to be a reasonably similar quantum, right? I think we're seeing that we're -- the expansions that we did in 2020, we might see a little bit more just because some stuff drifted from 2020 into 2021 as a result of -- partially as a result of COVID, but -- and I think you're seeing a little bit of a shift moving -- we had a really heavy investment period in Europe. And I think we're going to do a lot of deliveries into Europe over the near term. We have a lot on the docket going into Asia. And per my previous comments, I think Asia is a real growth opportunity. So I think we're going to be able to see more of that. Then the other area is we're probably investing a little more CapEx into our new product initiatives as well. So we really are building out the bare metal infrastructure for Packet into a number of these markets. That's going to be a bit of an incremental, sort of addition over prior years, but not dramatically different, I think, than what we have seen. Obviously, we'll give you more precision as we guide for the year, but that's sort of a general layout.

Is there a multiyear target you have for these new services where you want it to be x percent of revenue in a certain number of years and that will kind of determine success of the effort?

Yes. We do -- we've been -- candidly, we've been continuing to adapt and refine those numbers. And I think we'll -- that's going to be one of the key things that we're going to really talk in-depth about, I think we have a much better understanding of both what the addressable market looks like and what our capabilities to advance that look like. And so I think as we move towards our Analyst Day in late June, we're going to be in a position to give more guidance because I think that's something that people really want to understand better based on when we're going to see some material contribution of those new products towards our revenue growth. And so I think that is -- more to come on that one.

In our final couple of minutes, is there anything else that you want our audience to be mindful of as they think about AX in 2021?

No. I think -- again, I think that at a really simplistic level, the basic story being one of digital demand is accelerating. The pandemic has reinforced that. I think data is being created, moved, manipulated, stored at levels that are unprecedented in human history, and I think that is going to continue and even accelerate with drivers like AI and eventually 5G. So I think we're -- the underlying demand picture continues to be strong. And I think we play a very unique place in this overall ecosystem. I think hybrid and multicloud is well-established as the architecture of choice. People on balance are going to want less private infrastructure than they once had back in the enterprise data center days, but the private infrastructure they do have is going to be: one, substantially more distributed; and two, substantially more interconnected. And I think those are facts that, I think, virtually any sort of enterprise -- enterprise or service provider CIO, would tell you those are things that are true, and I think they really lend themselves well to the long-term prospects for Equinix and where our sweet spot is in the market. So I think it's -- and then the other -- the only other thing that we didn't touch on here that I think is a really important piece of our story is what an incredible team and culture we've built. I think the team navigated a very difficult year in 2020 extremely well. They have this in-service-to mindset, not only for each other, but for our customers and for the communities in which we operate. And I think continuing to invest in that and build a scalable, sustainable culture is an important part of who we are and what we stand for, and that's going to be a key priority for us as well. So excited about the future and excited to give you guys our results for the full year in February and then come together in June to give you the longer-term picture.

Charles, thanks for sharing your time with us today.

My pleasure. Thanks again, and happy New Year to all.

Thanks. Happy New Year to everyone. Thanks, everyone, for joining.