Megaport Earnings: Good News Keeps Getting Better as Firm Announces Strong Guidance

After releasing fourth-quarter results last month, Megaport MP1 issued full fiscal 2023 financials and 2024 guidance on Aug. 22 and yet again excited investors. While guidance unsurprisingly implies that revenue growth will decelerate from the 40% level of the past two years, the swing to profits the firm now expects is even larger than we previously projected.

We are raising our fair value estimate to AUD 17 from AUD 13 and expect Megaport to continue translating its rapid sales growth to higher levels of profitability.

After achieving EBITDA profits for the first time in fiscal 2023, with AUD 25 million representing a 16% margin, the firm expects EBITDA of AUD 51 million-AUD 57 million in EBITDA in 2024, implying a margin of nearly 30%. Management was very confident in the accelerating operating leverage in spite of the firm’s plans to add a significant number of salespeople this year who will not materially drive revenue until fiscal 2025. We have long believed in Megaport’s operating leverage and its value proposition for customers, but its execution is happening even faster than we expected. With a growing need for enterprises to connect to multiple cloud providers around the globe, we anticipate the business momentum to continue. The lag in productivity for the increased sales headcount bodes well for the chances of seeing sales growth accelerate again in 2025.

The ability to drop an increasing percentage of sales to the bottom line continues to be the most exciting feature of the Megaport business model to us. Megaport also achieved positive operating cash flow for the first time in fiscal 2023, with AUD 10 million. Considering the firm’s minimal capital expenditure needs, we now expect the firm to comfortably achieve positive free cash flow in fiscal 2024 while also realizing positive net income in 2024, one year ahead of our previous expectation.