The Megaport Ltd (ASX: MP1) share price has soared 40% after announcing its profit expectations over the next two years.
Megaport is a business that helps investors connect with cloud infrastructure. It announced its quarterly update and also told investors about its expectations for ‘normalised EBITDA’ (EBITDA explained).
Solid March quarter
In the FY23 third quarter, it added 607 new services, including 188 customer ports. Monthly recurring revenue (MRR) rose by 14% quarter on quarter (up $1.7 million) to $14.1 million in March 2023. Total revenue grew 3% to $38.1 million compared to the FY23 second quarter.
In the third quarter, it achieved reported EBITDA of $7.2 million, while normalised EBITDA was $5 million. It made $2.4 million of EBITDA in the FY23 second quarter.
This represented the fourth consecutive quarterly period that Megaport has reported positive EBITDA.
Megaport also told investors about repricing for its cloud VXCs globally in March 2023 to align with cost increases. This led to a net increase in revenue of around $1.2 million in the month of March, which was higher than the initial estimates (in January) of between $8 million to $10 million, annualised. There was less customer churn than expected, demonstrating the “stickiness” of its services and customers.
The price increase initiative is expected to deliver around $1 million per month of additional positive cash flow.
Its cost reduction program has also led to a total of $3 million of annualised cost savings. A further $4 million in annualised cost savings has been identified, with these savings “expected to be realised by the end of the 2023 financial year and fully recognised during FY24.”
Stronger profit
Megaport noted that, as a result of the various initiatives designed to improve the company’s operating and financial performance and cash generation, it expects to generate normalised EBITDA to be above the ‘market consensus’ (a group of analysts’ forecasts) of $9 million in FY23 and $30 million in FY24.
The ASX share is expecting to report normalised EBITDA in FY23 in the range of $16 million to $18 million, and normalised EBITDA in FY24 in the range of $41 million to $46 million.
Final thoughts on the Megaport share price
The business has rocketed higher, so I don’t think it’s a hidden bargain that it may have been before this update.
I think the business has a promising future, and increasing levels of profitability are a good sign.
I’m not sure what a good price is for the business, considering the changing interest rates. But, I think it’s one of the most interesting ASX shares and could continue to do well from here, if its revenue can keep growing strongly.
