Nextdc Ltd reports full-year results: Should you buy?

With Nextdc Ltd (ASX:NXT) set to record positive earnings in 2015, it could be a good idea to buy it now while it's discounted.

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What: Data centre provider Nextdc Ltd (ASX: NXT) moves closer to recording positive earnings in 2015 after laying all the groundwork this year.

Highlights:

  • All five primary data centres established after completion of S1 Sydney and P1 Perth in 2014
  • Annualised contracted recurring revenue up 36% to $41.7 million
  • High margin cross connects up 190% to 1,488, representing more than 4% of recurring revenue
  • Customer utilisation up 22% to 11.9MW
  • S1 and M1 Melbourne centres certified as ISO27001, allowing Nextdc to contract with Federal Government departments and agencies for data centre services
  • $160 million in cash raised through placements, note issues and sale of interests in/receipt of development fees from Asia Pacific Data Centre Group (ASX: AJD)
  • Strong 2015 outlook including substantial revenue growth to between $51-$55 million

So What?

Nextdc has laid all the groundwork for success, with the company perfectly positioned to benefit from rising demand for cloud computing and data storage services over the coming years.

As the company finally transitions into a profit-making business, investors will better be able to evaluate the long-term potential of the business, though short-to-medium-term indicators are quite strong.

2015 revenue of $51-$55 million will be 20% higher than this year, however the underlying improvement is much stronger since there will be no development fees received from Asia Pacific Data Centre Group (which contributed $21.4m this financial year) in 2015, as all data centre construction is complete for the time being.

Now What?

Nextdc has the significant advantage of being a relatively early mover in the industry, and its ISO certification and Telstra Corporation Ltd (ASX: TLS) channel arrangement is a big plus for potential demand and scalability.

However there are significant potential risks associated with demand not appearing as anticipated, and the replacement of expensive equipment which becomes rapidly outdated.

My fellow contributor Tim McArthur wrote an excellent article earlier this year about the risks of data centre ownership which I recommend potential investors take a look at.

Research shows you don't need to take big risks to earn a reasonable return on your investment, as simple compounding of modest returns combined with regular investment can deliver huge multiplicative growth over time.

The Motley Fool has recently released a free report on 'How to Make $1 Million in the Market' – a highly informative publication which clearly outlines that regular investment and buy and hold strategies are the best way to grow your wealth over time.

I personally have read the entire thing at least seven times and can comfortably say that there's a lot of useful information in there, whether you're new to the share-market or have a bit more experience behind you.

If this sounds like the sort of thing you're interested in, simply click on the link below and enter your email address – it takes less than 30 seconds – and we'll send it to you, completely FREE!

Motley Fool contributor Sean O'Neill has no financial interest in any company mentioned.

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