Businesses of every size are moving to cloud-based servers and data storage solutions. It’s no longer necessary or practical to manage data centers on-site, and organizations are realizing significant cost-savings and greater security by outsourcing this function to specialized facilities.
Switch, Inc. (NYSE: SWCH), is a leader in this space, offering unique, innovative products and services for its clients. But in spit of its early successes, current share prices suggest investor confidence is low. This begs the question is Switch stock worth buying or is Switch stock price going to $0?
Switch Services: The Basics
As companies move their data to cloud storage solutions, there are three critical elements to consider.
(1) Robust Data Center Facilities: The hardware needed to house and maintain huge amounts of data requires plenty of real estate, and basic warehouses just won’t do. Because the equipment is sensitive, all facilities must be carefully fitted to supply appropriate energy, temperature, and physical security.
(2) Disaster Recovery: Large organizations face major financial losses if data centers go down in an emergency situation. Weather is an important consideration when selecting data center locations, and data center providers are expected to create and maintain redundancies to ensure that there is no chance of lengthy downtime or data loss.
(3) Risk Of Cyber Crime: Cyber crime continues to present a serious threat to businesses of every size and so data centers must offer state-of-the-art security for all information stored and transferred through its systems. A single breach can decimate budgets and drastically impact public trust in the affected organization.
Switch (NYSE: SWCH) ticks all of these boxes in its technology infrastructure solutions.
Since it was founded in 2000, the company has positioned itself as a leader in innovation, risk mitigation, and economies of scale. One of the ways Switch has differentiated itself from competitors is through its commitment to sustainability and social responsibility:
We believe that the future progress of humanity depends on the sustainable growth of the Internet. As more people, businesses, governments and devices come online, the need for data centers increases, as does the growing need to power those data centers with renewable energy.
A Brief History of Switch Stock – and Why Today’s Investors Are Wary
Switch held its IPO in October of 2017, offering early investors an opportunity to buy at $17 per share.
It was an appealing investment for many, because the company had enjoyed accelerated growth rates in preceding years.
In its first few days on the exchange, Switch increased past $20 per share. However, prices soon took a nosedive, and they have never recovered.
A year later, Switch stock price plummeted to $7 per share, and analysts were luke warm at best about the Switch price forecast.
By all standard financial metrics, things don’t look good for Switch. Earnings growth and sales growth are poor, there is deep concern about operating margin growth, cash flow is an issue, and there is no return on equity.
In short, the company’s growth stalled just after it went public, and it has since missed earnings predictions in the quarters that followed.
The company had been growing at a rate of 20 percent or more, nearly hitting 25 percent from 2013 – 2016. Following the Switch IPO, the rate of growth dropped to just 10 percent. The success that sparked enthusiasm for the IPO suddenly vanished.
And it gets worse. The competition from the likes of Amazon (NASDAQ: AMZN) is stiff for major clients, and so far, Switch hasn’t succeeded in winning the business it needs to turn its financials around. As a result, it is no surprise that investors are reconsidering their purchase of Switch stock, and many have decided to cut their losses and sell.
Why Some Investors Are Buying Switch
Those that haven’t invested yet are examining the company’s prospects and debating the likelihood of a breakthrough. The most optimistic – and those with a higher level of risk tolerance – are buying at today’s low prices. They are betting that Switch has a profitable future on the horizon.
The fact is that the need for data centers will continue to grow. Though many of the largest organizations have already transitioned to this model, there is an enormous list of companies that have not yet made this change.
Further, a significant percentage of the global population is not yet online, and many more countries have only just started to leverage the power of the internet. As access and use grows, companies that already use data centers will have additional needs.
Switch offers high quality products and services, and the company has a long history of innovation. That, coupled with its commitment to sustainability, opens the possibility that Switch can regain its leadership position in the industry.
In fact, Switch leadership indicates that revenues aren’t stalling because the business isn’t there. Instead, they have commitments, but contracts are taking longer to close than they once did as clients spend more time evaluating their long-term data center needs.
Rob Roy, CEO, chairman and founder of Switch summed it up best:
Due to this new holistic approach to hybrid cloud solutions, the closing cycles on these projects have extended the sales timelines. Our sales pipeline is the largest it has been in our company’s history and we are extremely confident that we are on the right path to utilizing our industry’s only Tier 5 platinum data center ecosystems to deliver long term customer and shareholder value.
If you are willing to stomach a healthy does of volatility, Switch stock may pay off in the end.Will Switch stock price go to $0? Perhaps not. But a graveyard of companies has lies in the wake of the Amazon juggernaut so it’s no mean feat to stand toe to toe with the titan.
For the optimists, the Switch share price is at rock-bottom, and the company may be just a major contract or two away from resuming its previous rates of growth.