This guide highlights the key performance indicators for the Data Center industry and where investors should look to find an investment edge. While this guide is not a fully integrated data center industry primer, as the market leader in granular consensus estimates data, Visible Alpha works with partners and clients to determine the key performance indicators in the data center industry. This guide will aid market participants in identifying industry trends and the future performance of data center companies, by region and service type.
In this guide, we’ve divided the data center industry into two main categories based on their business models. These categories include:
Analysts model pure-play data center companies based on either power consumption or capacity. For simplicity, we explain the business model of data centers by diving into three business models; Pure-play Data Centers – Capacity, Pure-play Data Centers – Power Consumption, and Qualified Data Center REITs.
Pure-play Data Centers – Capacity
Pure-play data centers generate revenue by providing colocation, interconnection, managed, and other related services to their customers/tenants and charging a margin for the services rendered. They charge their customers fees for the area (square footage) occupied, power consumed, interconnections, and other aligned services. Revenue generated by pure-play data centers can be bifurcated into recurring and non-recurring revenue. Recurring revenue mainly comprises colocation, interconnection, managed infrastructure, and other revenue.
Colocation services involve providing companies with physical space, power, and security to host their critical applications and workloads in an integrated ecosystem. Colocation spaces are offered under fixed duration contracts (typically three years) and billed monthly generating monthly recurring revenue (MRR). Colocation revenue is calculated as the average number of billing cabinets multiplied by monthly recurring revenue (MRR) per cabinet. A cabinet is like a rack in that it can hold assorted modules for electronic equipment. Further, the average billing cabinet is computed by multiplying the average cabinet capacity by the utilization (%).
Interconnection is a point-to-point cable link between two or more cabinets within a data center or between two different data centers. With interconnection, clients receive a fast, convenient, and affordable integration with their partners and service providers. They also receive highly reliable and extremely low-latency communication, system integration, and data exchange. Revenue generated from rendering these services falls under interconnection revenue.
Interconnection revenue is calculated as average cross connects multiplied by MRR per interconnection. A cross-connect is a physical direct connection between two different termination locations. Recurring revenue also includes revenue from offering managed infrastructure services, and other revenue earned by the data center.
Non-recurring revenue primarily comprises installation services related to a customer’s initial deployment and professional services.
Pure-play Data Centers – Power Consumption
Similar to the capacity-based business model, revenue generated by pure-play data centers is modeled based on power consumption and can also be bifurcated into recurring and non-recurring revenue. Here, however, recurring revenue is computed as total utilized capacity (megawatt, MW) multiplied by average revenue per MW (/month). Further, total utilized capacity (MW) is calculated as total capacity (MW) multiplied by utilization rate. Average utilized capacity (MW) is the sum of total utilized capacity MW (current period) and total utilized capacity MW (previous period) divided by 2.
Qualified Data Center REITs
Data centers REITs generate revenue from rendering rental services, tenant reimbursement, interconnection, and other related services. Together, rental revenue, tenant reimbursement revenue, interconnection revenue, and other revenue account for total REITs revenue. Total rental revenue is calculated as the average area utilized (sqm/sqft) multiplied by the monthly service revenue per sqm/sqft (MSR). Further, the average area utilized (sqm/sqft) is the product of the area in service (sqm/sqft) and utilization (%).
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Expenses for pure-play data centers and data center REITs include utility costs, rent expenses, employee payrolls, real estate taxes and insurance, electricity sales, and marketing expenses, and research and development expenses. Some major expenses include:
Qualified Data Center REITs
Some key metrics applicable to data center REITs include:
Key performance indicators (KPIs) are the most important business metrics for a particular industry. When understanding market expectations for Data Centers, whether at a company or industry level, some Data Center KPIs to consider are:
Pure-play Data Center – By Storage Capacity
Pure-play Data Center – By Power Consumption
Data Center REITs
To understand market expectations for the data center industry, a key information source is sell-side analyst estimates and consensus forecast data. The buy-side, sell-side, and public companies leverage this type of data to conduct competitive analysis, a type of analysis conducted by professional analysts that involves comparing standardized metrics of one company with those of similar companies. Because companies report metrics differently – and sometimes report on different metrics altogether – standardizing the key metrics for each company can be a cumbersome process.
Visible Alpha Insights includes analyst data, company data, and industry data at a level of granularity unparalleled in the market. Our industry data – Standardized Industry Metrics – enables market participants to quantify and compare market expectations for companies across 150+ industries.
Data as of January 2023
Visible Alpha offers one data center-related comp table, comparing forecasts for key financial and operating metrics, to make it easy to quickly conduct relative analysis, whether you are interested in looking at key values for global data centers, Americas, or Europe. Every pre-built, customizable comp table is based on region, sub-industry, or key operating metrics.
Pure-Play Data Center
Qualified Data Center REITs
Visible Alpha offers an innovative, integrated experience through real-time, granular consensus estimates and historical data created directly from the world’s leading equity analysts. Using a subset of the below KPIs, this data can help investors hone in on the key drivers of companies to uncover investment opportunities.
Cabinet Capacity
Cabinet capacity is the total number of cabinets that are available at a data center, i.e., the total cabinet capacity at which the data center operates. Clients can combine and use multiple adjacent cabinets within a data center, based on their requirements.
Utilization Rate (%)
Utilization rate indicates the ratio of utilized cabinets in service. It showcases the percentage of cabinet capacity utilized.
Billed cabinets
Billed cabinets are the total number of cabinets that are used by clients.
Average Monthly Revenue Per Cabinet
Average monthly revenue per cabinet indicates revenue generated by a data center from each cabinet. It is calculated as total revenue divided by the average number of cabinets occupied.
Capacity In Service
Capacity in service is the total power capacity available at a data center to operate the facility, i.e., electricity consumption, specifically kilowatts (kW) and megawatts (MW).
Utilized Capacity
Utilized capacity is the total of all capacity sold in MW for utilization where the service has commenced.
Utilization Rate (%)
Utilization rate indicates the ratio of utilized capacity to capacity in service. It showcases the percentage of capacity utilized.
Contracted Capacity
Contracted capacity is the capacity for which clients are required to pay reservation fees.
Average Monthly Revenue per MW
Average monthly revenue per MW indicates revenue generated by a data center from each unit of megawatt (MW). Average monthly revenue per MW is calculated as total revenue divided by the average utilized capacity (MW).
Portfolio Occupancy Rate / Utilization (%)
Portfolio occupancy rate measures the occupancy rate or the percentage area of a REIT’s property that has been leased. It is calculated as leased space divided by total leasable area. The portfolio occupancy rate is a measure of success that a REIT has had in attracting tenants and leasing the space it owns. The higher the occupancy rate for a REIT over time (compared to its peers), the better.
Total Square Feet (K) / Area in Service
Total square feet (K) is the total amount of floor space available for rent to retail tenants.
Square Feet of Expiring Lease (K)
Square feet to expiring lease (K) is the number of square feet of lease which is expiring in a period.
Expiring Rent Per Square Feet
Expiring rent per square foot is the rent per square foot at the time of expiration of the lease.
Average Cost of Debt (%)
Average cost of debt (%) is a measure of the average interest rate paid to fund a retail business. It is calculated as interest expense paid divided by average debt (secured and unsecured loans and revolving credit facilities)
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This guide highlights the key performance indicators for the data center industry and where investors should look to find an investment edge, including:
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