Megaport implosion as low single digit growth rates are not enough to impress investors

Thu 21 Apr 22, 1:38pm (AEDT)
drowning in ocean with hand up for help
Source: Unsplash

Key Points

  • Megaport continues to deliver its classic low-to-mid single digit quarterly growth
  • March quarter-on-quarter revenue growth was 5%, the slowest since March 2021
  • Megaport shares are down almost -20% on Thursday and -50% from last November

Megaport (ASX: MP1) shares have cratered almost -20% after a third quarter FY22 trading update flagged a deceleration in revenue growth and continued cash burn. 

Third quarter at a glance

  • Monthly recurring revenue for the month of March was $9.5m, up 3% quarter-on-quarter (QoQ)

  • Revenue of $27.9m, up 5% QoQ

  • Total customers of 2,541, up 4% QoQ

  • Net cash outflow of -$6.3m

Not a good time to slow down

Investors are growing less and less tolerant to loss-making companies struggling to accelerate growth as covid tailwinds disappear.

Netflix was a prime example, reporting a loss of 200,000 subscribers during the March quarter - its first decline in paid users in more than a decade.The company’s stock plunged -35% on Wednesday.

Megaport’s narrative isn’t as extreme but the third quarter result was the company’s slowest revenue growth rate since March 2021. For more QoQ revenue growth context: 

  • 2Q22: 7%

  • 1Q22: 14%

  • FY21 quarterly avg growth rate: 6.5%

  • FY20 quarterly avg growth rate: 11.8%

During the quarter, Megaport experienced net cash outflows of -$6.3m, which is broadly in-line with its historic quarterly cash outflow range of $4 to $10m (since 2018). 

Megaport has, on the off occasion, lessened its cash burn, notably in second and fourth quarters of FY21 where cashflow was $894,000 and -$202,000 respectively.

Profit when? 

In the context of full-year and half-year results, Megaport management have not addressed the topic of profitability since February 2021, where chief executive Vincent English said "our path to profitability remains firmly in focus, with all three regions now EBITDA positive."

The challenge for Megaport is balancing cash burn for scale and top line growth, while making sure losses don't get out of hand.

So far, the company seems to have achieved neither - with only sporadic periods of improved cashflows and consistent low-to-mid single digit quarterly growth.

Megaport shares are down around -50% since last November. But still maintains a market cap of around $2bn.

At a $2bn valuation, the company trades at around 25 times FY21 revenue. A revenue multiple which was once akin to BNPL stocks. And look where they are now.

Megaport Ltd (ASX MP1) Share Price - Market Index
Megaport 12-month price chart


Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

Get the latest news and insights direct to your inbox

Subscribe free