The Aussie Broadband Ltd (ASX: ABB) share price has sunk 18% after the company revealed a disappointing update.
Aussie Broadband is one of the larger telcos in Australia, growing market position with its NBN offering.
FY24
The company said that based on its preliminary results, it expects the FY24 EBITDA to be at the top end of its guidance range of between $116 million to $121 million provided in February 2024.
Excluding Origin Energy Ltd (ASX: ORG) and Symbio broadband connections, Aussie Broadband said its total broadband connections was 684,299 at June 2024, up from 665,983 at the end of the FY24 third quarter and 630,200 at the end of the FY24 first quarter.
The company reported that its net broadband addition growth was 84,876 in FY24, excluding Origin and Symbio.
At 30 June 2024, the company said there were still 145,402 Origin broadband services, which were excluded from the above numbers. Aussie Broadband expects that the Origin services will be migrated off the network during the first four months of FY25.
New challenger brand
Aussie Broadband revealed it has launched Buddy Telco, a new digital-first challenger brand aimed at “disrupting the value-seeking NBN market in Australia, targeting 4 million households out of the estimated total addressable NBN market of approximately 8.3 million.”
Users will be able to manage their connection, upgrades, outages and usage through the Buddy Telco app, website and live chat. Services will be on “a self-service basis only, leveraging Aussie’s years of expertise in automation and will incorporate machine learning for network and technical support.”
Buddy’s plan pricing will be “highly competitive” and it is expected that Buddy will maintain an EBITDA contribution margin percentage similar to Aussie’s premium retail offer.
The ASX share expects to invest $10 million in FY25 for set-up and marketing costs. Management hope Buddy will make positive EBITDA from onwards. Buddy is targeting 100,000 customers within three years.
FY25
Before the impact of Buddy Telco, Aussie Broadband provides EBITDA guidance range of between $135 million and $145 million. This would be an increase of between 12% to 20% from the top of the FY24 guidance range. Including Buddy, EBITDA is expected to be between $125 million and $135 million.
Final thoughts on the Aussie Broadband share price
The market clearly wasn’t impressed by what they saw in this result. It is interesting that the ASX share felt compelled to start a new brand rather than purely focus on the Aussie Broadband.
If the company can grow its underlying earnings over the long-term, then it’s possible this sell-off could be an opportunity. However, with how advanced 5G is becoming (and perhaps 6G eventually), I’m not sure NBN earnings will be that defensive. I’m not sure what will happen next, but I’m not looking at Aussie Broadband as an obvious opportunity seeing as it’s bringing in new, low-cost competition into the sector.
