Shares in fibre-optic internet startup Superloop Ltd (ASX: SLC) have fallen 4.5% today and 22% since the start of the year as its lofty valuation starts to return to earth.
Even today the market is ascribing a giant valuation to the Superloop business that recently acquired wireless internet provider BigAir Group in a cash and scrip deal where the consideration valued Superloop shares at $3.31.
In my opinion the BigAir business has something of a mixed track record and does not look a natural fit with an Asia-focused dark-fibre provider, but it remains to be seen how the two businesses will operate together.
Superloop's fibre business does have some attractive qualities though and for the quarter ending September 30 2016 it advised the market that it was progressing nicely, but still losing money.
The company now owns 300km of dark fibre networks providing secure high-speed internet and cloud services to enterprise clients across Australia, Hong Kong and Singapore, where it has been investing heavily in constructing the required fibre networks under the streets of these high-density urban jungles.
It has also been strengthening its sales teams in Hong Kong and Singapore in an attempt to sign up corporate clients and dark fibre remains a lucrative business model as once the upfront cost of the fibre is paid additional clients can be added to its giant spare capacity for minimal extra cost.
Foolish takeaway
Superloop has potential, but remains on a lofty valuation given it's still losing money and has the additional risks around developing the BigAir business.
If you want exposure to the lucrative dark-fibre sector why not buy the cheap looking Vocus Group Ltd (ASX: VOC)?
It looks a company with the already built tech infrastructure that means it's primed for the digital future, while already being highly-profitable and paying out a big dividend yield. Vocus will report its results on February 22 and I expect could prove very undervalued at $4 per share if management reconfirms previously provided profit guidance.
