Internap Earnings Preview

As usual, Internap (INAP) will be one of the last data center companies reporting earnings, due out today (Thursday) after the market closes. Analysts expect, on average, revenues of $60.5 million, and a profit of $0.01 per share.

Internap reported revenues of $63.5 million in the fourth quarter of 2009, and this quarter should represent the last one being impacted by the pro-active churn in partner data centers that put a shadow on top line results in 2010, while strongly improving margins for the company.

As a reminder, in the third quarter of 2009 Internap's CEO, Eric Cooney, started to proactively churn out approximately $5 million of low margin or loss making revenues generated at partner data centers, to concentrate all sales efforts on Internap's managed facilities. The target of this initiative was to increase gross margins in the remaining partner sites to approximately 20 percent by the end of 2010, while the owned facilities already report margins of about 50 percent, in line with competition.

This program was on track for completion in the fourth quarter of 2010, and for this reason analysts expect the company to return to growth in 2011, and estimate revenues in excess of $ 254 million, or a 3.9 percent increase on expected 2010 results. Guidance for 2011 will be key for investors.

In our attached interactive spreadsheet, which you can also download at this link, we examined some of the key metrics that will be under analysts' scrutiny this quarter – revenues, including revenues per segment, adjusted EBITDA, and customer and partner data center count, which have both been declining in the last few quarters.