Megaport Ltd’s (ASX: MP1) delivered solid growth in recurring revenue and margins in its half-year results, but foreign exchange headwinds and acquisition costs dominated attention as the share price sold off.
Megaport’s half-year result combined business improvement and FX headwinds, and one large acquisition cost!
The network business continued scaling, group revenue rose 26% to $134.9 million, with gross margins of 72%. Operating earning (EBITDA) grew 28% to $35.3m – however, this figure excludes share-based payments, foreign exchange movements, fair value changes and acquisition costs. Megaport Network Annual Recurring Revenue (ARR) grew 16% to $263.4 million. Net Revenue Retention (NRR -how much revenue Megaport keeps – and expands – from an existing cohort of customers over a period, after accounting for churn and downgrades) was ~111% and with the strength in the America’s a highlight.
A reminder of what Megaport does here.
That was the good. Beneath the headline, the company reported a statutory loss after tax of $19.1 million after $15.8 million of acquisition-related costs.
The market seemed to focus on the latter, with the Megaport share price down 11.79% on the day to $9.65
Key points of Megaport’s first-half results
- Revenue up 26% to $134.9 million (Americas +34% to $81.2 million; APAC +13% to $32.1 million; Europe +23% to $21.6 million).
- Megaport Network ARR $263.4 million (+16% YoY); customer logos 3,040; large customers 676; total services 37,077; NRR (logo) 111%.
- Gross margin 72% (+2pp); EBITDA up 28% to $35.3 million (EBITDA margin 26%).
- Statutory loss after tax $19.1 million, driven by $15.8 million acquisition-related costs; “underlying” loss after tax ($3.3 million) excluding those costs.
- Net cash $177.0 million (cash $206.3 million) following a $218 million capital raise and acquisition outflows.
- FY26 guidance updated for Latitude.sh + Extreme IX and FX: revenue $302 million to $317 million, EBITDA margin 21%–24%, capex $90 million to $100 million.
What were the drivers of Megaport’s first-half result?
From a core financial perspective, Megaport had strong key metrics.
Revenue, gross profit and EBITDA all delivering meaningfully, underpinned by continued expansion in the American markets and improving retention/expansion, with an impressive NRR of 111%.
Two acquisitions complicated the result.
Megaport completed the acquisitions of Latitude.sh and Extreme IX within the first half, resulting in significant acquisition costs hitting the profit and loss. Megaport continues to ramp up investment beyond acquisitions. During the half, the company doubled its investment in property, plant and equipment, and almost doubled its payments for intangibles (investing in product and engineering staffing).
What does Megaport’s first-half result mean
An improving gross margin is a positive sign.
Megaport expanded its gross margin to 72%. This is allowing the company to use this operating leverage to reinvest in the business. Management is prioritising reinvestment over near-term profitability.
It’s still early days for the two acquisitions.
Latitude.sh contributed $5.8 million of revenue post-acquisition and ran at a loss over the first half. Extreme IX added a small revenue and profit contribution. In the long term, the plan for these two additons make Megaport a more strategically ambitious (network + compute + AI-adjacent positioning) but also make an already complex business, even more so.
It also adds a little balance sheet risk. Half of Megaport’s assets are now sitting in intangibles, which can be written down if assumptions change. Given the nature of the business these can be difficult to value from the outside.
Megaport also has a material contingent consideration of $200 million (cash or shares) in relation to the acquisition of Latitude.sh. This is basically a final payment to be made to Latitude.sh. assuming certain hurdles are met.
Megaport’s outlook and guidance
Megaport tightened and lifted the low end of its guidance in constant currency, citing strong Americas momentum, better net retention, and sustained growth of new customers.
For the combined group, FY26 guidance is now:
- Revenue: $302 million to $317 million
- EBITDA margin: 21%–24%
- Capex: $90 million to $100 million (including initial India hardware deployment; management exepcts maintenance capex to remain low as a % of revenue).
The result was always going to be tricky to follow, given the new acquisitions.
For me, what I’ll watch over the next half is is whether Megaport can maintain its excellent NRR of 111% while scaling its investment. I’d also like to see signs that the investment in the two new acquisitions is on the right path and the group is becoming a larger, stickier multi-product business.
A very interesting and complex business, with serious data centre tailwinds.
