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Why the Megaport share price is falling today

cloud computing, cloud, software, technology

The Megaport Ltd (ASX: MP1) share price is down 3.6% to $4.05 in Thursday morning trade following an announcement that the company has completed a capital raising. Megaport has successfully raised $50 million via a placement at $4.00 per share to institutional, experienced, sophisticated and professional investors.

The issue price of the new shares represented a 4.8% discount to the closing price of $4.20 on March 12, the last day of trade before Megaport announced to the market that it was raising capital.

Megaport intends to use the proceeds of the placement to “accelerate expansion to new locations and new markets, undertake capacity upgrades, fund innovation and internal development of new technology and fund operating costs and general working capital requirements”.

Furthermore, Megaport founder Bevan Slattery has sold 5 million shares to institutional, experienced, sophisticated and professional investors in a secondary offering at the same price as the shares issued via the placement. He will still hold a relevant interest of around 16.3% in Megaport following the completion of the placement and the secondary offering.

Megaport will also offer eligible shareholders in Australia and New Zealand the opportunity to apply for up to $15,000 worth of new shares in a share purchase plan that will be capped at $10 million.

Foolish takeaway

Megaport is the global leader in providing elastic interconnection services. The company uses software defined networking to enable customers to quickly connect their network to other services across the Megaport network on an on-demand basis.

For the half-year ended 31 December 2018, Megaport reported revenue of $15.2 million, a 72% increase over the prior corresponding period. Total monthly recurring revenue rose 70% to $2.7 million.

The company generated a profit after direct network costs of $4.8 million, a 131% increase over the prior corresponding period. However, it still posted a net loss of $16.6 million which was larger than the $13.3 million net loss reported in the prior corresponding period.

Megaport is positioned to benefit from the rising demand of cloud connectivity. The company currently has 245 installed data centres and is on track to reach 300 installed data centres by the end of fiscal year 2019.

Megaport is a company growth investors should be monitoring in the small cap space alongside other promising tech companies Audinate Ltd (ASX: AD8) and Elmo Software Ltd (ASX: ELO).

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Motley Fool contributor Tim Katavic has no financial interest in any company mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Elmo Software. The Motley Fool Australia owns shares of and has recommended AUDINATEGL FPO. The Motley Fool Australia has recommended Elmo Software. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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