The Megaport Ltd (ASX: MP1) share price is down 4% after the ASX tech share reported its HY23 report.
Megaport is a business that enables businesses and organisations to connect and utilise cloud computing providers like Microsoft‘s Azure and Amazon.com‘s AWS.
Megaport’s HY23 result highlights
Here are some of the main highlights from the update compared to June 2022:
- Monthly recurring revenue (MRR) rose 16% to $12.4 million
- Customers increased 4% to 2,739
- Total services increased 6% to 29,088
- Average revenue per port up 9.2% to $1,223
- Total revenue up 38% to $70.7 million
- EBITDA (EBITDA explained) positive for the whole period, normalised EBITDA up 147% to $3.4 million
- Operating cashflow improved 118% to $1.4 million
- Net loss improved by 33% to $13.5 million
Megaport said that natural profit margin growth was enhanced by active cost and price management. It said that it finished the period with an EBITDA margin of 6%.
While profit after direct network costs and partner commissions increased 50% to $46.5 million, total operating expenses only increased by 13% to $43.1 million. Employee costs only grew by 7% to $30.5 million. Marketing costs jumped by 145% to $2.7 million, but this is aimed at growing the businesses.
The company pointed out that a number of listed businesses use Megaport, including Lendlease Group (ASX: LLC), BlueScope Steel Limited (ASX: BSL), Ramsay Health Care Limited (ASX: RHC), Fortescue Metals Group Limited (ASX: FMG), South32 Ltd (ASX: S32), BHP Group Ltd (ASX: BHP) and Boeing.
Commentary on the outlook
Megaport noted that it has started a major cost-cutting exercise, with $8 million to $10 million of annual costs identified. The majority of the savings relate to consolidation of cloud on-ramps and network operations. This could boost profitability and the Megaport share price.
The majority of these monthly cost savings are expected to be delivered by the end of FY23.
It’s going to increase prices for connecting to legacy cloud on ramps, which will bring it in line with MCR and MVE. This is expected to deliver an additional net $7 million to $10 million of annualised revenue. No further changes to prices are expected for the rest of the product portfolio.
Final thoughts on the Megaport share price
With higher interest rates, investors have adjusted how much they think growing businesses like Megaport is worth. Megaport shares have dropped more than 50% over the last year.
Its short-term growth outlook has slowed. Some businesses may delay their IT spending because of the possible downturn. But, the long-term outlook looks promising to me, which is why I think it has a very promising future at this lower valuation. It’s now profitable at the operating cashflow and EBITDA level.
For investors interested in this ASX tech share, I think it’s worthwhile investing in it during this period.
