For CyrusOne, the IPO is only the beginning

Data center provider is set to grow into a major international player

23 January 2013 by Yevgeniy Sverdlik - DatacenterDynamics

For CyrusOne, the IPO is only the beginning
Jack Cassidy, chairman of the board (left) and Gary Wojtaszek, president and CEO of CyrusOne rang the opening bell at Nasdaq on 22 January, 2013

As Gary Wojtaszek and Jack Cassidy rang the opening bell of the trading day at Nasdaq on Tuesday, the ship they were at the helm of had just barely left the dock but had already gained full speed for a long journey. Wojtaszek is CEO and president and Cassidy is chairman of the board at CyrusOne, a US data center provider whose shares began trading on Nasdaq last Friday.

“It’s a younger company in the process of laying out a significant growth strategy, and they’re at the beginning of doing that,” Rick Kurtzbein, research analyst at 451, commenting on the IPO. What sets the company up to forge ahead full-steam is its current footprint, the senior-management team it had put together and the strategy it has laid out, he explains.

Success of the stock offering, initiated by CyrusOne’s former parent company Cincinnati Bell, showed the market’s confidence in the provider’s management team and strategy. The IPO was initially priced at US$16-$18 per share, but was quickly upgraded to $19 per share, at which price point the shares started trading under the symbol “CONE”. At the first trading day’s close, CyrusOne shares were up about 12%.

The company raised $313.5m in the IPO, money Wojtaszek said it would invest in construction. “All proceeds from that remain at CyrusOne, so that’s all going to be part of our growth capital that we intend to invest back in the business, building out more data centers,” he said in an interview.

New US and Latin America locations likely
The provider’s management team plans to expand available data center capacity in its current locations and enter new geographic markets. Domestically, those new geographies will most likely be on the US East Coast and in the Pacific Northwest. Internationally, we are likely to see CyrusOne to step into Brazil, Wojtaszek said.

Kurtzbein said he would not be surprised if the company chose Northern Virginia or the greater New York-New Jersey area for its East Coast location. It is already well established in its home state of Texas and on the West Coast, which will be served by its new massive data center in Phoenix. Among its recent expansions in Texas are a 60MW Carollton site, a 24MW site in Houston and a 20MW one in San Antonio. “I think they’ve laid the groundwork there,” Kurtzbein said about CyrusOne’s Texas presence.

Internationally, CyrusOne has a relatively small data center in London it leases from a colocation provider and a mid-size one in Singapore. Its further expansion roadmap in those markets will depend on the rate of take-up there, Wojtaszek said.

Leasing space from another provider, like CyrusOne did in London, is the quickest and lowest-cost way to establish a presence in a new geographic location, Kurtzbein said. This is most likely the beginning of CyrusOne’s play in Europe. “I can see where one day they [will] actually add their own facility there,” he said. “They obviously have global intentions.”

Going after large enterprises
CyrusOne has traditionally gone after large enterprise customers. It is a strategy that has worked for them so far, and Kurtzbein expects it to continue working. “They’ve carved out a niche, and they certainly are successful in leasing to enterprise gas and oil companies,” he said, referring to CyrusOne’s initial success in its home state.

Today, the company has set its sights on a much wider enterprise market, beyond the energy industry. “We’re looking for really large companies looking to outsource their primary compute to a company like us,” Wojtaszek said.

Simultaneously with the IPO, CyrusOne has converted into a real estate investment trust (REIT), which will significantly reduce the amount of corporate income taxes it will pay. The rub, however, is that a REIT cannot provide managed services. The company is addressing that by developing a substantial network-interconnection play by building internet exchanges in all of its data centers. The interconnect business will be an additional source of its REIT income.

With expansion capital, a solid growth strategy and a strong management team in place, CyrusOne is a young company that is fully armed to tackle the data center market. “What we’re seeing right now is just the beginning, and it’s going to be very interesting watching them as they continue to execute their growth strategy,” Kurtzbein said.

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