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

Well, good afternoon, and welcome back to Citi's AppsEconomy Conference. For those of you I haven't met yet, I'm Mike Rollins and I cover the communications services and infrastructure stocks for Citi. Just a couple of housekeeping items before we get started. I'd like to mention that we have disclosures available to the right of the video player as well as under the Citi's Disclosure tab, if you're dialing in or viewing this through Velocity. Also for those of you joining us here today, if you'd like to ask questions during this discussion, you can just enter them directly into the questions box that you should have on the screen and they'll come to us, and we'll do our best to get them integrated into the discussion. So with all those details out of the way, I'd like to welcome back Charles Meyers, CEO and President of Equinix. Charles, it's great to see you.

Great to see you, Mike. Pleasure to be here.

Well, as we've done for a number of years now at our conference, maybe the best place to start is to get your perspective on the operating and strategic priorities for Equinix in the year to come.

Absolutely. But before I jump in, I will make our IR team happy and 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 those statements. So I think like in many respects, I think our priorities continue from last year into this year largely the same. In its simplest form, I think it is driving growth in the business. And I think we are experiencing a demand backdrop for a business that is as positive, I think, as it's ever been and driving long-term operating leverage. And I think the combination of those 2 things are the things that are going to really create such a value for our investors. And so that's what we're focused on. Now how we're going about that, I think on the growth side, I think it's about really investing in our sort of core interconnected colo business, scaling our go-to-market engine and also investing in simplifying and automating and streamlining our operations to drive operating leverage in that very large business. And then I think in parallel, it's about accelerating the uptake and the investment in our -- or accelerating the uptake and sustaining the investment in our digital services side. And we're seeing that portfolio of offerings, if you consider Equinix Fabric Connect its metal network edge and those things, they're growing at a multiple of what the broader business is growing at. And so we're going to continue to invest there, ramping xScale and then really continuing to extend the platform, both in terms of reach and capability. And so that's -- all the while also, I think there are key priorities we have from a sustainability front, from a DMB front and those kind of things that are foundational on the culture side and then what we're trying to accomplish. So those are really what we're focused on in the year ahead.

To drill down on over the next 40 minutes. Maybe just starting at that high level, you referenced demand. And I'm curious how you're seeing the demand drivers, the pipeline entering into 2022. And as you look at your dashboard of leading indicators, which you might actually have on your laptop in front of you, what's different today on that screen than a year ago?

Well, I think there's different levels of that. I think there is sort of a -- there's sort of macro factors in terms of what are the underlying sort of secular demand drivers for digital infrastructure, broadly speaking. And I would say on that front, we look at kind of what's happening in terms of the levels of data that are being created, moved, stored, et cetera. And as you and everybody else that's around this business knows, those numbers are staggering, right? And they're not slowing down. They're accelerating. And so I think that's sort of the most leading type indicators that we look at, which is what is the overall demand backdrop for digital and therefore, for digital infrastructure. And sort of cloud uptake and cloud adoption and data and storage and Internet traffic volumes and those kind of things are the leading indicators that we look at that say, what's the forward-looking prospects for the business overall. And I think those are -- and those translate then maybe into the next level, which is what do we think the spend profile is of people spending on digital going forward. And one of the things that we've seen is the sources that we look at all are upwardly revising those forecasts in terms of total IT spend and spend on digital infrastructure and all those kind of things. So that's sort of the more macro backdrop. Then we have our own leading indicators within our business, and that is fill rates, utilization rates, cabinet yields, billable cabs, interconnection. And those are also very much up and to the right. And so we're investing in the capital behind making sure that we have the capacity to satisfy what we think is a really robust demand profile. We have a ton of projects underway, I think 30-plus projects across 19 or 20 markets around the world, and we feel really good about the demand profile that we're underwriting those projects into.

Great. Are you ready for our first live survey question?

Sure.

So for our audience, you'll see the live survey in just a moment, if not already. It's anonymous. We're not tracking your responses. Once we get enough critical inputs into it, we'll be able to share the results. And so the first live survey question is, what will organic constant currency revenue growth be for 2022? Just by reference, and Charles, correct me if I don't have this correct, I believe the midpoint of guidance for '21 is about 8% organic constant currency. And the long-term annual target range was updated to 7% to 9% at the Analyst Day back in June.

That's right.

So the choices -- and I'll read these because on our video feed, they're not going to show up. Just so Charles, for your benefit and our listeners who don't have video, the choices are less than or equal to 7%, and then we go 7% to 8%, 8% to 9%, 9% to 10% and over 10% as growth rates. So we'll get those survey results in over the next few minutes. And while we wait for those results, as you're thinking about the go-to-market, for 2022, are you planning incremental investments or changes to the distribution strategy, whether it's your direct sales force or what you've been doing with the growing contribution you've been getting from the indirects?

Yes. Short answer is yes. I mean I think we both expect to continue to extend the scope and scale of our direct selling force just given the strength in our bookings and what we see in terms of the funnel. But then I also think we're going to invest in the channel side. And there, I think the investment is more around investing in processes and systems to reduce the friction that it takes -- reduce the friction associated with people selling into the Equinix platform as channel partners and combining their value with ours. And that means investments in APIs and the technology associated with that. It means investing in our sort of quote-to-cash systems to make them more channel partner friendly. And those are investment areas that we have baked into the budget and are going to be investing in. But as you saw in Q3, the performance of our channel program was really exceptional. And I think that we have the opportunity to go -- I think one of the things I've mentioned to you in the past, Mike, and in other forums is we still have a largely sell with engine. In other words, that our direct force is typically engaged directly with the end customer alongside a channel partner. And by the way, I think we'll do that for -- that will continue to be the case for the foreseeable future that we'll be doing a lot of that. But I think there is an opportunity if we can create greater self-service opportunities for customers to essentially just sell through without a lot of friction in that process. And so -- and I think our newer service offerings like Equinix Metal and Network Edge and fabric really lend themselves to doing that in more of a sell-through fashion, which I think will create more operating leverage in the business over time.

So if we go to the results that we have, about 1/3 went with 7% to 8%, and about 2/3 went with 8% to 9%, both of them within that long-term target range. I know you haven't given guidance for '22 yet, but as you think about the exit ramp out of Q4 and '21, how do you think about the growth prospects for the business in '22, the pluses and minuses that people should be keeping in mind?

Well, I'm not seeing the results, but I'm glad that people appear to be taking us at our word from between 7 to 9, right? And so look, I guess the way I would react to it, and obviously, we're going to give you the updated guide here in the not-too-distant future in terms of what '22 really looks like, and I'm not going to spill those beans now, but I would tell you -- and we're still working that -- the overall forecast. But I would tell you that I think the demand backdrop is really good. And I highlighted that earlier. I think our success from a bookings perspective has really been consistent over the past, really delivering a lot of record results. I think the relevance that Equinix has in terms of -- and this is true both in the enterprise, which is our fastest-growing vertical, but also in the traditional service provider side of our business who are ramping up and scaling out to tap into that enterprise demand themselves. And so I think the business, from a demand standpoint, is really firing on all cylinders. And so I look forward to coming back and giving you guys an update on kind of where we are and what that looks like overall.

And so as we're on the topic of revenue growth, one of the incremental discussion points over the last few months has been inflation. And when we last spoke, the idea was discussed around structural as well as some temporary or tactical price increases that Equinix could use. Can you unpack a little more about the opportunities on pricing and how inflation is coming into the picture as you look at the business model?

Sure. I mean, I'd say, Mike, that 1 thing that I keep in mind is I do think if you look at the broader macroeconomic and global macroeconomic backdrop, we are seeing an inflationary environment that certainly may be more -- even more true in the U.S., but it's, I think, generally true around the world, which is rising input costs, rising labor costs, et cetera. And so I think what you've seen over the last year or so is that begin to flow through in terms of companies in a variety of sectors are talking about their go-forward year and what they're going to look like and the price increases are pretty much a standard part, a standard fare. And so I do think -- I was talking in one of the earlier sessions today that I believe that I was going to say that I thought that customers would be receptive to that. Receptive is probably the wrong word. I think they'll be understanding that -- and expecting that there is going to be some level of increase in our sort of baseline pricing that is associated with some level of increase in cost in the business. I think that's going to be augmented. So I do think we're seeing that, and we're preparing for that and we're communicating with customers about that. And I think that will be more across the board. I think there are specific markets where we're seeing more acute changes in cost profile, particularly on the energy side, where I think we want to probably use a variety of ticks, which is using both more increases in standard pricing, but potentially surcharges that we could more easily sort of take away as things stabilize. And so it will probably be a mix of those things. I do think that's going to just provide some probably modest headwind on the revenue side. But because we probably aren't going to recover all of it, there will be a little more noise at the margin line, and we'll have to figure out other ways over a period of time to sort of offset that in other ways.

And before we get to our next survey question, just digging in a little bit more on this point. When Equity gave the annual target range of 7% to 9% predated some of the inflation that's now being experienced at second half of '21 and coming into '22, so in some ways, is the opportunity to do the structural price increases and some of the temporary ones, is that an augmentation possibly to the way Equinix can grow revenue from its original anticipation? Or does it get kind of captured in that range that was already established?

I think generally, the biggest factor driving where we land there is more about the overall profile and how people are thinking about digital transformation and our relevance, et cetera. To the extent we implement pricing increases, which we will, I do think that's additive to that to some degree. And so I think the question is -- and I think we'll be able to give you a better sense for how that -- all of that sort of plays in. Although I do think that the pricing is going to be a little more something that happens over extended periods of time and has different levels to it, depending on whether that's a response to a particular sort of volatility situation, like it is in certain markets around energy, or whether it's sort of baked in to more of a baseline price increase. But yes, I mean I think it's going to be 1 factor that could potentially move us up.

Well, I want to drill down on that digital transformation point that you were making, but before we do, I'll introduce our second live survey question. And the question is -- and this will preview kind of where the conversation is going, is Equinix destined to have a different asset mix in the future? And the choices are no, current retail strategy with the hyperscale minority investments is optimal. And then we have 3 choices of yeses, whether you would add scale enterprise solutions or merge with a tower firm to get closer to that edge strategy or just further expand managed services and the connectivity services that you were talking about earlier. So we'll open that up to the audience and see how they respond to that. In the meantime, just on the subject of digital transformation, can you give us an update on the demand you're seeing from the enterprise vertical and what you're seeing from these network hub deployments and how that might be evolving into a land and expand for this enterprise vertical?

Yes. I mean I think we're seeing a variety of sources of strength in the enterprise vertical. I think that it is -- again, it's a broader prioritization digital transformation. Yes, that includes, by the way, WAN rearchitecture as a kind of a more fundamental piece of how they think about their digital assets and their digital infrastructure. And we play a very unique role in that, as you know, sort of WAN rearchitecture and our network performance hub kind of offering, if you will, and those things have been a key -- in many cases, a lead offering for us in engaging with enterprises. But I think we're now seeing that implementing Equinix as a hybrid multi-cloud hub and really the nexus of a broader hybrid and multi-cloud infrastructure strategy is really -- is taking root as that. And so I think we're seeing success in a number of those areas. And that's also being augmented by how people are thinking about data. One thing that we're really seeing as prevalent is people thinking about how they want to manage their own data, how they want to intersect it, where they want to store it. Generally, I think we're finding that people are more inclined to put it somewhere central, that they can act on it with a range of cloud resources that they -- that it's not resident in 1 place, they can move it freely in and out without sort of having certain tax on that in terms of egress charges and those kind of things. And also that they can act on it with -- and generate insights with AI and those kind of things. And so that, I think, is one of the real things that we're seeing that is driving some of the enterprise demand. But overall, I would say the demand backdrop for enterprise is super strong right now.

And so we'll go to the results of our survey. And so interestingly, 29% thought the current strategy in asset mix is optimal. 57% thought you would need to add scale on enterprise solutions and in additional markets. And only 14% thought you should expand with managed services and connectivity. 0% thought you should merge with a tower firm to expand the edge data strategy. So curious, Charles, and we've had a chance to speak about this last month, but what's your current view on the edge and on the asset strategy for the company?

Yes. I mean I would -- I guess I would agree in that I don't see a really compelling reason to make a structural combination between those different asset types in terms of the current far edge resources that a tower company would have and more of the aggregated edge that we have. And I recognize that flies in the face a bit of the AMT CoreSite combination. But I think that what we're seeing is that we do believe that over time, there will be the emergence of more far edge opportunities where compute and other digital resources storage networking is kind of for certain applications, we'll need to be having a more extended reach into the far edge. But we also -- one, we don't see that sort of materializing at a rapid rate today, and we think that's further down the road and probably somewhat dependent on sort of the densification of 5G. And we think that the -- at least our interaction with customers is the vast majority of use cases and that they are looking to implement are effectively met with -- by placing infrastructure at the aggregated edge. And we have such a -- the delta and the latency profile between our current edge, which is in 66 markets around the world and has pretty close proximity to the vast majority of the global population, is generally sufficient to meet customer needs. And so we aren't seeing that as a really compelling sort of gap as we see it -- as our customers see it today. Over time, I do think that there will be those things. As I've told you at conferences in the past, I think, for us, a very reasonable strategy is for us to interconnect the aggregated edge to the far edge through a series of partnerships and technologies that allow us to do that more seamlessly and look at things like extending our Equinix Fabric and metal and network edge potentially into other locations through more partnership-type strategies. And so I continue to see that as the more likely outcome and we'll continue to sort of track how that's materializing in the market.

The Network segment for Equinix has kept up as a percentage of revenue over many years, even though some would argue the network category probably matured years ago. It's been a very interesting aspect of the business to follow. Where is that incremental demand coming from? And is it part of it coming from a change in mobile architectures where you're trying to get mobile firms to maybe put ORAN or C-RAN hubs be your facilities and have that direct connection to the cloud?

Yes. Part of it is, I wouldn't say that's a major contributor yet, but we are having success from a business development perspective talking to mobile operators, both physical and virtualized that are looking at and seeing the aggregated edge that we offer as a compelling place to deliver -- or place certain elements of their mobile infrastructure. And so we are seeing success there. I think we're also just seeing the fact that network -- there is -- has been very robust demand for network globally. And I think Equinix has really established itself as the -- as sort of the center of gravity for that network interconnection. But I would say that perhaps the biggest contributor, Mike, is that we currently -- our partnerships with network operators around the world as they serve their enterprise customers are probably a big contributor. So what you're seeing is actually probably enterprise business delivered through networks that is showing up in our network business. Because, for example, if it's AT&T, it's the customer record for us selling an enterprise solution that includes Equinix Cloud or other Equinix services to their end customer. That's showing up in our network number, even though it's really end-user enterprise business. And so I think that's probably contributing in part to that.

We'll go to -- we'll introduce our third survey question, which is what is the biggest threat to the financial results of retail-centric data centers, Equinix over the next 3 years? And we've given a variety of choices we have on this 1 in the past. We've added a couple. Competition, changes in cloud architecture, technology changes the interconnection model, greater power density, energy costs, SG&A broadly or no immediate threat. So we'll see what our audience feels about this. But again, your responses are anonymous. So feel free to respond and we'll aggregate those up. And while we're aggregating those responses, if we can move to the margin discussion. And one of the questions that we've been getting -- I suspect you've been getting it, too, is can Equinix improve margins in 2022? And earlier, you were talking about driving that long-term operating leverage. So where is Equinix on that opportunity?

Yes. I mean as I said at the very top, our focus is driving growth, revenue growth and then long-term operating leverage because one thing that I think is clear is that we've kind of mostly tapped out our below-the-line AFFO per share growth in terms of refinancing debt and all those kind of things. So the way we're going to deliver FFO per share growth is by delivering solid revenue growth and good flow-through, right? And so -- and we had said that '22, we would probably be more towards the low end of the range. I think we'll give you an update on what our current view of that is in just a month -- a little over a month. But operating leverage and margin expansion continues to be a key priority for us. But I do think we look at it as a multiyear journey, right? And I think I've said it in other forms in the past that we're probably a bit more back-end-loaded over the planning period as to how we would get to that $50 million, but you're not going to get -- you're not going to sort of stay flat and then magically get to it in 2025, right? And so I do think it has to be a progression over time. I do think that people are aware there's a level of investment in the business that's happening now. The utility -- the energy volatility is a little bit of new news since we had provided that at Analyst Day as you indicated earlier, but I think a lot of that will be able to offset by pricing actions. And then -- but then there's -- and then there's other vehicles and levers at our disposal to try to do that. But we'll give you, I think, a better sense of what that looks like. I think the more important sort of way to look at it is that is in the -- over the long term, which is we continue to feel like there's both operating leverage and margin expansion opportunities that can get us to that $50 million and we see a very strong demand backdrop that gives us confidence that we're going to be able to grow the business nicely.

Are there any updates on the energy side that investors should be mindful of any stabilization relative to the uncertainty maybe in November, December of last year or anything that you've learned over the last couple of months?

It's coming down a little bit in some places, but still quite volatile in others. There are certain markets like Singapore and France that are a little bit more acute. And I think we're looking at really each market and understanding what we think the drivers of the energy volatility are, how long we think they'll persist, understanding what our hedge position is or isn't in each of those markets and what that represents in terms of exposure going forward. Then how we can manage things from the supply side in terms of both predictability and efficiency to reduce the impact. And then really looking at more the demand side of, okay, how are we going to think about that with customers and how are we going to -- what are our avenues to pass that through either as we've talked earlier about in surcharges or baseline price increases. So that's all well underway. There is a lot of complexity to it that I think isn't fully appreciated. I think people realize that our model is a little bit different in that it's unlike a sort of a large wholesale or hyperscale player. Our next scale is simpler because it's sort of -- it goes through as pass-through. But in our business, it requires more of a notification to the customer than rolling that in. And so there's a little bit of friction in sort of that recovery. And it won't be complete. And so we'll have to figure out other ways to offset whatever gap we have between what we can pass through and what we experienced. But I do think it's going to be something that is more transitory for the business. And again, we'll give you a good handle on that when we do the February guide. But I think the long-term prospects of us both driving the top line, getting the flow-through and the margin expansion that we need over the longer term here and the prospects that, that -- what that means for our ability to deliver AFFO per share growth continue to be very strong.

I was recently reminded that software companies have this rule of 40, where they add together their revenue growth rate and their margin and compare themselves to this number 40. And as I listen to what you've been describing about this balance of the revenue growth and the margins and the goals over time, should Equinix just have some kind of rule of a number where in any given period, if the service revenue growth is stronger, it might come at the cost of the margin a little bit or if the revenue growth is a little slower, you get a bigger margin output from that? Is that a way that investors should start thinking about the Equinix financial model in the future?

Well, I mean, to some degree, that's clearly the way we think about it, right, which is, hey, what do we need to do in terms of delivering margin expansion because in the end, we have to deliver the AFFO per share growth, right? And so -- and because we serve -- aren't going to get that below the line, then what we have to do is get good solid growth, and then we have to flow that through. And if we want to perform on the AFFO per share line, we have to continue to drive some level of operating leverage in the business. So I do think that's the way we think about it. And I think -- and so I guess the answer is yes, I think that's the way you should think about it as well, which is -- but I think it's nuanced in that I think that, for example, making certain like as we talked about in sort of the latter parts of 2021 and going into 2022, we've made investments in terms of things like simplifying and improving our billing accuracy, in doing things like providing automation tools for our technicians in data center so that we can open up a data center and operate a data center with actually less -- fewer human beings than we need today on a per transaction basis, right? Those are investments that we are making now that will pay dividends more down the road. And so it's always that investment. And then in parallel with that, taking things like our digital services portfolio, which clearly is in a bit of a --, right? And so -- but I think we do think about it that way because we recognize -- and particularly as this is probably particularly true as a REIT, Mike, because we can't just park all our profits on the balance sheet and say, "Hey, we're just going to go into the red for a long while and then we'll come out streaming on the other side." It doesn't really work that way for us, right? So I think that we think about it that way, we recognize that we have to deliver sort of solid growth and then over time, deliver the operating leverage as well. So I do think that I would be very reluctant to sort of -- and of course, if you -- I guess if you look at it, we're crushing the rule of 4. So that's good in our business. But I do think we think about it generically in that way, which is we've always got balanced revenue growth and margin profile.

So we have the results of the survey in and it's kind of spread out. About 20% cited competition as the biggest threat to your future financial results. 20%, change in cloud architecture. And then also greater power density, higher energy costs were also about 20% each. And then higher SG&A was about 10%. And no immediate threat was about 10%. So you have this like spread of answers. Maybe we'll just touch on a few of these. Competition, as there's been more consolidation in the category and some of your competitors have been more focused on boosting their retail presence, are you seeing any change in the competitive landscape or any examples where there's a greater level of switching between platforms, going from Equinix to Digital Realty or to CoreSite or to another platform that just sits out there and you're just seeing that head-to-head competition?

Yes. I mean I still think that the competitive in the broader data center business is quite segmented. And the people that really have that sort of deep comprehensive global interconnected cloud footprint is really small, right? There are places where competitors have that. And the interaction business, which is sort of now tucked inside of digital in Europe, is a good example of that. And we've always said they're good and solid and always have been a robust competitor in Europe. But it really hasn't really changed the dynamic there much. I mean we saw that before. We see that now. There was a little period in between where there was some confusion, and we were trying to sort of make hay such times. But now it just seems to have stabilized out into the normal course. And so I haven't really seen a big -- I feel like our -- I'm less focused, honestly, on our competitors and more focused on our customers, which is what are their needs, how do we continue to meet those needs. I understand that there are competitive -- there are elements of competition in the market. And not just from what I think people that I think would be viewed as traditional players, but I think even from services that are overlapping in terms of things that we might deliver, how clouds are thinking about their business. And we increasingly live in a world where there's -- and so that brings you maybe back to these cloud architecture thinking and maybe that as a "threat." But -- But I don't -- I haven't seen a dramatic change in the competitive landscape, and we're very focused on continuing to deliver what we think is a super compelling value proportion to our customers in more places with more capabilities and in form factors and service offerings that are really responsive to their needs.

And on one of these other topics, which just changes in cloud architecture, a couple of your financial exchanges have talked about moving more of their workloads to the cloud, is that a risk for your -- for that financial vertical or for some of that business for you? How do you look at the impact of some of your customers embracing more of the cloud for these different aspects of their workloads.

Yes. I mean, I think to some degree, there's maybe a level of risk, but I think there's also a corresponding opportunity, right? And so if you look at these, I mean we just announced a significant long-term expansion of our relationship with 1 of those players right on the heels of them talking about how they also are investing in and from a technology perspective, the cloud as part of how they do business. And so I think both of those things can live very much together. And in fact, I think we provide distinct value for helping them facilitate that, think through that, tap into the ecosystem, et cetera. And so we view them as a very important partner and customer in that journey. I do think it will be over a very long period of time so that it doesn't create sort of step changes in our business. And I think we can adapt to where -- how do we tap into the opportunities that are presented and deal with the risk that are. But I do think that the nature of those businesses is such that the pace and the trajectory of the change profile will be rather deliberate. It won't be really steep.

Earlier in our conversation, you talked about the rapid growth of the digital services, the combination of fabric, metal, network edge and then it's just much faster than the broader base. If you added all those services together, roughly, like what percent of revenue are they today? And do you have like 5- or 10-year goal of what that could represent in the future based on what you're seeing in terms of interest and take rates?

Yes. I mean that business collectively, when you throw fabric in there and maybe some of our other networking services that are really, in many respects, digitally delivered, that's definitely met several hundred million dollars, right, and growing at a good clip. And so -- and I think that those businesses have the opportunities to be $1 billion-plus businesses for us over time. So the exact time frame on which that occurs, I don't know, but I do think that the addressable market opportunity for things like fabric and the evolution of fabric into a more comprehensive cloud networking solution, Network Edge, which can really extend to include a lot more virtualized network functions. And then, of course, metal as more of a foundational way for people to rapid deploy applications into new geographies and to manage take some of the complexity out of their technology life cycle, we think all of those things are moving with -- they have the tailwinds of the market moving with them. And so I absolutely think that when we look down the road to us being a -- if you really look forward and say, can we be a $10 billion company and can several billion of that -- multiple billions of that be associated with these more emergent type services, I think the answer is yes. Now the exact time frame of that, I think we've got some work to do.

And on the hyperscale side, you extended a number of partnerships and ventures that you're employing to go after this opportunity. Any new updates on how the hyperscale business is working to benefit your core retail business?

Sure. Yes. I mean I think that it's -- one, I think that the execution and the progress and potential on the xScale side continue to be enormous. Obviously, it's a little different in that we don't consolidate that revenue, it flows through in the form of fees and other things into the -- into our business. We do think it's -- it has the opportunity to be accretive to our AFFO per share over time in a meaningful way. But we're seeing great progress there. I mean as evidenced by the fact that almost every kilowatt of capacity or megawatt, I guess, more accurately, capacity that we have put up has been presold. There's still a little -- a few little things there. But for the most part, we're seeing really strong demand. And so -- and in terms of how I think it blends and really provides a 1 plus 1 is some number of much larger than 2 for the business is I think that we're really being able to continue to reinforce our position in the cloud ecosystem, extend our relationships with the key cloud players, really be inserted into how they're thinking about their business and where their priorities are and where they're growing. And I just think that really provides us with a leg up in terms of being able to really think more expansively about how to provide that cloud leader leadership in the cloud ecosystem have that translate to how our customers make decisions on their own digital infrastructure. And we -- like I said, the Equinix as a sort of nexus for distributed hybrid multi-cloud is probably single -- and fabrics role in that, is probably what I'm seeing as the most common lead story for a salesperson, right? And probably a few years ago was network and thinking about network performance hub and WAN rearchitecture, that's still important, but you've definitely seen this sort of Equinix as the sort of distributed global home of multi -- hybrid multi-cloud architectures as really the lead story and fabric has been central to that. And so you talked earlier about lead indicators, right? Well, we're now at 30% penetration to fabric across our customer base. And that's a really good sign, I think, for us. And we're really focused on continuing to make sure that fabric is a central part of the story for more and more of our customers.

And just taking a step back globally, are there markets that you're in that you want to get bigger in -- Or are there new geographies that you want to break into? Can you give us a little preview of how the portfolio may expand over the next couple of years?

Sure. Yes and yes. There are definitely markets that we're in that we want to be bigger in. I'll give you a couple of prominent examples of large markets that we think have very large addressable markets where we're a relatively smaller share player. And by the way, we have a history that there was -- you saw at the Analyst Day, 1 of my favorite charts there was sort of showing we were the market leader in 1 market in, whatever it was, 15 years ago, that was the U.S., right? And now we're the market leader in a large number of global markets and in the majority of the markets in which we operate. And certainly, that's, to some degree, our objective. And so I think that you take big addressable markets like Mexico and India that we've just now entered with really targeted strategic transactions and a huge opportunity to expand and grow and capture share in those markets. I think that's probably acutely true in India because we have a relatively small business. We're rapidly selling out the capacity that we bought with TPx that are feverishly looking to build more, both in Mumbai and then looking at so many other large markets there, whether that be Hyderabad, Bangalore, Delhi, et cetera. So huge opportunity there. And then in terms of net new markets, we've talked about several of those. Southeast Asia, I think, represents a very interesting -- traffic flows are changing shape in Asia. And so I think there are markets like either Indonesia, Vietnam, Malaysia, et cetera, that I think are potentially very interesting to us. I think there's LatAm markets. We're really only in Colombia and Brazil today, and Colombia is relatively small. I guess if you extended it to include Mexico or definition of LatAm there. But there's definitely more true LatAm markets for us to consider. And then Africa, I think we've announced the Main 1 transaction. We think that's a great launch point for us there. I think there's additional opportunities for us in Africa. I'm sure it will come up. So obviously, we saw the Teco transaction this week announced by digital. We do think South Africa is an important market. And we'll be prepared to aggressively compete in that market, and we're going to continue to look at the right entry strategies there.

Are you ready for our rapid fire, 3 questions in 3 minutes?

Sure.

First question, why should investors buy your equity?

I think it's just a great bet on sort of the digital economy opportunity. I think it's -- and what's really interesting about it is I think that it delivers both yield and predictable growth. And I think it does it in a way that -- it's like a digital index but with alpha. And so I think it's a very unique opportunity. And if you look at our ecosystem, it really sort of takes in all of these different digital opportunities that are shaping this, but you don't have to bet on any 1 individually. You can bet on more us as the plumbing of making all that happening and playing this ecosystem role. And so -- and I think if you look at the track record in terms of, as I said, both yield and predictable growth and delivery and execution, I think it's a very compelling story.

So the second question, and we talked about different aspects of this over the last 45 minutes, is inflation a net opportunity, net neutral or net risk for your business model and financial performance? If you take everything together that we discussed, which bucket does that fit in?

Yes. I mean I think that it's probably over the -- I think over a multiyear period, I think that's probably a -- sort of a modest net opportunity. And I think it will drive -- it will probably put a little bit of wind in the revenue growth sales. As we talked about earlier, I think there's -- it has the ability to contribute in that way. There is -- there are offsetting factors in terms of that if you can't sort of recapture all of that through passing through, does that pressure margins? I think that's more of a temporal phenomenon. So I think if you look at that over a multiyear period? If I look at -- the way I look at the inflationary environment is the ways to respond to inflation and vein, you basically have 3 levers that you're disposal, pass it through, innovate around it or offset it through other needs: scale, efficiency, et cetera. I think all 3 of those levers are available to us, I think we're going to be able to effectively pass through a portion of it. And it's interesting, I always get the question people say, well, aren't you the -- you're the premium player. So do you have less room to pass through more without a negative reaction from customers. I would argue very much the opposite, which is, I think we have a very compelling value. I drew the parallel in an earlier meeting to Apple, which is Apple is the premium product, but Apple probably also has a much better ability to raise prices because it has such a compelling value to the customer. And so I think we're more in that realm. So I think that being able to pass it through, being able to innovate around elements like engineering, our architectures to be more effective from a cost per kilowatt standpoint, and then offsetting it with scale and efficiency, all those are available to us. So I think over the -- over a multiyear period, I think I view that as a modest net opportunity.

And our final question, since this is the AppsEconomy conference, what application can fundamentally change demand for connectivity and data consumption?

Yes. I mean it may be a little bit of a copout in terms of specificity that you're looking for, but I think it revolves around AI. I think that how people are thinking about data, about the business importance of data, how they're creating and sort of creating business value from that, I think it's extraordinary. So if you look at what our recent announcement with NVIDIA with their Launchpad effort being sort of based at Equinix and the success, I think, that they're going to have in terms of driving -- democratizing AI, which Jensen talks about, we're seeing that show up in our funnel every day in terms of people thinking about how do I take my data? How do I put it in a strategic location to intersect it with the rest of the ecosystem to gain insights and then to deliver those insights to other parts of the business that can create value. And I think that, that's going to be a driver. And we're seeing that show up in our partnerships, in our customer demand, in a variety of very interesting ways. So I think I'd probably point to that one.

That's a great way to end. Charles, thank you for your time today. It's great to see you.

Mike, always great to see you. It's a pleasure to be here, and I look forward to hopefully actually seeing you in person in the not-too-distant future. But it seems like we say that every time. But one of these days, it's going to happen.

I do hope we're getting closer.

Me, too. Thanks, again, Mike.

Thank you.