The Megaport Ltd (ASX: MP1) share price was on fire on Wednesday, jumping 7.3% to finish the day at $14.20 as investors reacted to the company’s half-year results.
MP1 share price chart
Megaport is a global provider of elastic interconnection services, enabling over 2,000 customers to connect to 700 data centres around the world.
Here are the key takeaways from the report and my take on Megaport’s outlook.
Revenue growth fails to counter increasing net loss, EBITDA positivity in sight
First-half revenue increased 39% to $36.0 million compared to the prior corresponding period, driven by the addition of 23 new cloud onramps representing access to 11 new cloud regions.
Similarly, monthly recurring revenue for the month of December 2020 was $6.3 million, a 37% increase from December 2019.
Gross profit – calculated as revenue minus direct network costs – came in at $18.2 million, representing a 38% increase.
Despite the strong growth in revenues and gross profit, Megaport’s net loss ballooned to $38.4 million, a 103% increase compared to last year.
Megaport reassured shareholders the path to profitability remains firmly in focus, with all three regions now EBITDA positive.
CEO Vincent English said: “We are on track to achieve EBITDA breakeven for the Group on a run rate basis this Fiscal Year as we continue to optimise our footprint to maximise margins and move to profitability”.
What next?
Notwithstanding the net loss, it’s encouraging to hear management state the business will reach EBITDA positivity this year.
Megaport is well capitalised, with $144.8 million cash and cash equivalent held on the balance sheet and minimal long-term debt of $7.7 million. As a result, the business should be able to sustain losses for at least the next 18 months at the current loss rate.
The business is effectively in a global race for market share. Therefore, while the Profit & Loss result may not be pretty, investors should view the expenses not as costs but investments for the future, which will have payoffs well beyond the current reporting period.
Megaport operates in a market with structural growth. As more businesses move operations to the cloud, revenues will rise. Taking a long-term view, and assuming management execution, the business has a long runway for growth.
I’d be happy to take a small position now and add more funds as the business executes on its strategy.
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