The Megaport Ltd (ASX: MP1) share price has jumped 26% after its strong December update.
Megaport helps companies connect their business and network to the cloud.
Strong quarterly performance
Megaport reported it generated total revenue of $48.6 million for the quarter, an increase of 5% compared to the FY24 first quarter. It added 39 net new revenue-generating customers, an increase of 1%, to 2,816, while total revenue-generating services increased 3% to 28,516.
It ended the second quarter with annual recurring revenue (ARR) of $191.7 million, an increase of 1% quarter on quarter. It faced “significant” foreign exchange headwinds from a strengthening Australian dollar. Excluding the impact of foreign exchange, underlying ARR grew 4% in the quarter. This implies ongoing revenue growth for the year ahead.
The Megaport share price may be influenced by the underlying profitability.
Megaport managed to deliver good profitability, it generated $15.1 million of EBITDA (EBITDA explained) in the second quarter of FY24. This was flat compared to the first quarter, after it increased spending to “reignite the go-to-market engine”. That refers to the group of categories involved in winning customers, like marketing, more staff, events and travel. A year ago, EBITDA was only $2.4 million in the FY23 second quarter.
In this FY24 second quarter it made net cash flow of $6.9 million. Operating net cashflow was an inflow of $15.2 million, a 42% rise quarter on quarter. This was $15.0 million higher compared to the FY23 second quarter.
Megaport has also officially launched ‘Megaport Internet’, a scalable dedicated internet connection, allowing customers to manage their network in-house, with the flexibility to scale bandwidth on-demand and utilise a stable enterprise connection.
Outlook for the Megaport share price
Management said its investment in innovative new products and growth strategies is “proving profitable and will support ongoing success.” The business has been investing in its multi-cloud, hybrid cloud and cross-cloud capabilities, which is a “significant advancement, resulting in 10 times the spend” for customers.
It’s exciting to see the growth potential of the business playing out. Its profitability is growing significantly.
After such a strong rise of the Megaport share price, I’m not sure if this is a good time to invest, but if its profit keeps rising strongly year on year, it could be one to watch.
