Megaport: Stock Pops on Another Big Upward Revision in Guidance

Megaport’s MP1 stock skyrocketed 33% on July 11 after the company shared its new financial expectations for its fiscal 2023 fourth quarter, which it will report Aug. 22, and guidance for fiscal 2024. This marks the second enormous guidance boost in the last three months, leading to the stock more than doubling in that span. Nonetheless, we maintain that the market had become far too bearish on Megaport—which never faltered in moving rapidly toward profitability while keeping sales growth high—and we believe the stock is still undervalued, trading at a 30% discount to our AUD 13 fair value estimate.

In what will be its first full year of EBITDA profitability, Megaport now expects normalized EBITDA of AUD 19 million-AUD 21 million in fiscal 2023, up by AUD 2.5 million at the midpoint. It expects reported EBITDA of AUD 24 million-AUD 26 million in fiscal 2023, and it expects fiscal 2024 reported EBITDA to exceed the previously estimated range of AUD 41 million-AUD 46 million. Even better, Megaport expects its first year of positive free cash flow in fiscal 2024, and it canceled its AUD 25 million debt facility, supporting management’s previous statement that it will not need to raise cash again unless new, inorganic opportunities arise.

We expect to raise our fiscal 2024 EBITDA estimates when we get full guidance next month, but generally, Megaport is simply continuing on the trajectory that we’ve expected by reaching positive free cash flow in fiscal 2024 and staying on a trend of rapid sales and profit growth. We are therefore not currently adjusting our fair value estimate, which is based on the long-term projections that we expect we’ll maintain following the fiscal 2023 report.