Megaport Shares Hit on Sector Weakness, Soft Guidance

Investors sold off Megaport shares yesterday amid more general weakness among the techs and what investors thought was a less than convincing update for the second quarter.

The shares lost more than 16% to $15.32 in a slide smaller than the near rout Redbubble experienced on Tuesday after a very negative trading update was issued by that company.

Redbubble shares fell another 5% on Wednesday to $2.12 after Tuesday’s 22% plus slide to take the sell off to more than 27%.

Morgan Stanley downgraded Redbubble’s shares to an equal weight rating and cut the price target on them from $6.50 to $2.65.

Megaport’s one day slide was half that yesterday as investors gave a thumbs down to what looks like a ’standing still’ sort of update.

In the update to the ASX Megaport reported a quarter-on-quarter increase of just $600,000 or 7% in its monthly recurring revenue (MRR) to $9.2 million. This saw an 8% increase in second quarter revenue to $26.6 million.

Driving this was a 5% increase in customer numbers to 2,455, a 5% lift in total ports to 8,523, and a modest 2% rise in average revenue per port to $1.074.

This was supported by the launch of the PartnerVantage portal, which allows indirect partners to resell Megaport services.

While no details were provided on Megaport’s earnings during the period, it did reveal that its cash balance stood at $105 million at 31 December. This is down from $114 million since the end of September.

Megaport CEO Vincent English was upbeat in the statement, saying “In the second quarter, we continued to stay very focused on executing to achieve our targets and aligning the business for greater channel growth.”

“In addition to delivering the strongest second quarter for new customers and Ports, the team also delivered key new partnerships in the indirect channel and technology alliance space.

“Additionally, we launched VantageHub, a one-stop platform for indirect channel partners to manage their Megaport business.

Mr English was positive about the future, saying:

“We are well positioned to capture indirect channel opportunities coming into the second half of the financial year and beyond. Integration of InnovoEdge following the acquisition last August is well underway and we expect to showcase the capability for additional orchestration and automation for greater end-to-end control of network and IT resources in the next quarter.”

Megaport’s numbers during the quarter appear not to have been enough for the market -particularly given the very high multiples its shares trade on.

Its update looks to have been more positive than the one issued by Redbubble, but investor attitudes seem to be changing towards tech stocks.

Judging by the selloff in the Nasdaq this year in New York, investors are again moving more and more away from the growth story and back to value investing .


About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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