Brokers optimistic over mid-term outlook for Megaport following recent plunge

Shares in Megaport Ltd (ASX:MP1), already down -36% from last year’s peak, have traded sideways since the technology group revealed a first half FY22 revenue and earnings jump that surprised most broker analysts but failed to prompt any recommendation upgrades.

The company, which sells internet cloud and exchange services, on February 9 reported a 42% jump in first half FY22 revenue, to $51.2m, and a narrowing in its net loss to -$20.2m, from -$38.4m in the first half of FY21.

Chief executive officer Vincent English said he expects the company to move into profitability by the end of FY22.

Analysts still cautious, but bullish on second-half revenue growth 

Brokers nonetheless remained cautious, with none upgrading their recommendations on Megaport since the release of its half-year results. 

But most expect good news from Megaport over the mid-term, with Morgans suggesting the Brisbane-based group had the “ingredients for greatness”.

It forecast an “acceleration” in Megaport’s third quarter sales and beyond, but retained its existing Hold recommendation, citing concerns over the macroeconomic outlook.

Goldman Sachs noted that revenue per Megaport Virtual Edge (MRE) customer more than doubled over the period, from $5,000 in FY21 to $11,000 at the end of the first half FY22. It also noted the 20% increase in Megaport Cloud Router service customers, to 603 connections, as a positive.

The broker expects Megaport to increase the pace of its rollout of  global data centres, with over 40 new centres to be built in the second half of FY22, against just 6 in the first half.

Macquarie was excited about the 23% jump in monthly recurring revenue, to $9.3m at the end of the first half FY22.

It also noted the strong pipeline for MVE signaled a stronger growth trajectory.

Future Expansion into new markets

Megaport confirmed plans to launch this month in Mexico - Latin America’s second-biggest IT market by total spend. 

The initial launch will be via four new data centres in Mexico City and Queretaro, in partnership with Mexican IT group KIO Networks.

The expansion into Latin America adds to the company’s existing operations in Europe, North America and Asia Pacific.