- Digital Realty’s Q2 revenue fell by 0.7% YoY to $1.36B, missing analyst expectations.
- Despite the earnings miss, Digital Realty maintained annual revenue and core FFO forecasts.
- The company has been steadily reducing its debt, paying down nearly $1B in Q2.
- Significant inventory is expected to come online in Northern Virginia, a key growth driver due to high demand in the supply-constrained market.
Digital Realty (DLR), a leading data center REIT based in Austin, reported a slight dip in Q2 revenue last week, as reported by Bisnow. Share prices followed soon after.
Price Action
The firm’s Q2 revenues dropped 0.7% YoY to $1.36B, falling short of analyst expectations. Additionally, the company reported a drop in core funds from operations (FFO) to $1.65 per share, down from $1.68 per share the previous year.
Shares of Digital Realty reached a low of $145.65 on Friday, continuing their decline from a high of $162.33 on July 16. However, the share price had partially recovered to $147.10 by Monday afternoon.
Despite the earnings miss, the company maintained its annual revenue forecast of $5.55B to $5.65B and its core FFO forecast.
Growth Drivers
CEO Andrew Power expressed confidence in the company’s long-term growth, citing significantly more leasings during the quarter. “We had a top two quarter when you include new signings,” Power told CNBC. “Our new signings are up double from last year at the same time.”
Power also highlighted the company’s efforts to reduce its debt levels, a concern that had led to a high-profile short sell in 2022. Digital Realty has steadily lowered its debt over the past year and a half, paying down nearly $1B in Q2.
Power pointed to the substantial inventory expected to come online in Northern Virginia, the world’s largest (and one of the most supply-constrained) data center markets. “The good news is Northern Virginia, which represents about a quarter of our business and our largest market,” Power said. “We have $3 billion in data center investments coming online, with customers queuing up for that capacity.”
Why It Matters
Digital Realty’s share price decline coincides with Wall Street’s growing skepticism of companies with revenues tied to Big Tech’s AI boom.
Companies like Nvidia (NVDA), Alphabet (GOOGL), Microsoft (MSFT), and Apple (AAPL) also saw their shares fall due to concerns about steep AI expenses not yielding immediate revenue growth.
But despite a slight dip in Q2 revenue and a corresponding drop in DLR shares, Digital Realty remains optimistic about its long-term growth prospects.
