Megaport Earnings: Somewhat Slow Start to Fiscal 2024 Causes Irrational Panic… Again

Megaport MP1 typifies the overreactive short-termism of the market, and it continues to be an extraordinarily volatile stock. After nearly quadrupling within the past year to recoup about half of the 80% decline from its 2021 high, Megaport was down more than 15% in response to fiscal first-quarter results. Through it all, we’ve seen little change in the trends that underpin our investment thesis—fast revenue growth, ramping profitability, and services that will be in continually higher demand as more enterprises rely on data connectivity and cloud connections. Nothing in this quarter’s report changes our view, especially since the first quarter is typically slow and has often caused unnecessary worry. We’re maintaining our AUD 17 fair value estimate and see the stock as undervalued.

Total revenue grew 38% year over year to AUD 46.5 million, tracking well ahead of our full-year estimate, though it was helped by a currency tailwind. Profitability continues expanding with the sales growth. After EBITDA grew each quarter in fiscal 2023 on the way to the firm’s first year of EBITDA profitability, the trend continued in the first quarter. Total EBITDA was AUD 15 million, up 3% sequentially and equaling well over half of the 2023 total. Cash flow from operations followed the same pattern and was up 67% sequentially to AUD 10.7 million, with free cash flow coming in around AUD 5 million.

A sequential deceleration in several customer metrics, including total customers (up 0.2% sequentially) and total services (up 2.2% sequentially), contributed to the stock weakness. Prior management often cited a seasonal slowdown in first-quarter customer activity, and Megaport’s new management has taken several steps that we expect will lead to a reacceleration in customer growth. Most notably, the firm has nearly completed the hiring boost it previously disclosed, including 20 new sales and marketing positions, nearly doubling Megaport’s prior sales staff.