GDS Sinks 8% On Worse-Than-Feared 3Q Loss; Stock Up 81% YTD

Shares of GDS Holdings are down about 7.7% in Tuesday’s pre-market trading as the company’s 3Q loss of $0.21 per ADS missed analysts’ expectations for a loss of $0.11 per ADS. Meanwhile, the China-based IT service management company’s revenues of $224.6 million marginally beat the Street consensus of $224.2 million.

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GDS’s (GDS) revenues spiked 43% year-over-year, driven by its 43.8% growth in service revenues. Adjusted EBITDA in 3Q jumped 48.3% year-over-year.

GDS CEO William Huang said “We recorded another quarter of strong growth, propelled by sustained sales momentum.” He added that “During the third quarter, we secured approximately 24,000 sqm (net) of new customer commitments. With one quarter left for 2020, we have already exceeded the organic sales performance for the whole of last year.” (See GDS stock analysis on TipRanks).

As for 2020, GDS updated its revenues and EBITDA guidance. It now expects its 2020 revenues in the range of RMB5,700 – RMB5,750 million, compared with the earlier guidance range of RMB5,510 – RMB5,750 million. Adjusted EBITDA is forecasted in the range of RMB2,660 – RMB2,670 million, compared with the earlier guidance of RMB2,550 – RMB2,670 million. The updated guidance translates into revenue growth of 38.3% – 39.5% and adjusted EBITDA growth of 45.8% – 46.4% on a year-over-year basis.

Ahead of the 3Q results, Truist Financial analyst Gregory P Miller raised the stock’s price target to $115 (23.5% upside potential) from $100 and maintained a Buy rating. The analyst said in a note to investors that the company’s bookings should accelerate above historical levels, given its “dominant” position in China and higher pandemic-related demand for data center offerings. He added that the capital raised from the Hong Kong IPO will support the company for accretive merger & acquisitions activity.

Currently, the Street has a bullish outlook on the stock with a Strong Buy analyst consensus. Given the year-to-date share price gain of 80.6%, the average price target stands at $102.25, indicating upside potential of about 9.8% to current levels.