The Megaport Ltd (ASX: MP1) share price has fallen 0.98% in early trade on Monday, down 4 cents to $4.05.
Megaport provides a 'network as a service' which allows companies to increase and decrease their available bandwidth in response to their own demand requirements. This means that their corporate customers can avoid expensive long-term contracts, and avoid paying for excess bandwidth that they don't need.
Megaport released its half-year results on 12 February. Despite widening losses, revenue grew 72% over the prior corresponding period. The highlight of the report was an 80% growth in monthly recurring revenue in the North American market. This was helped by the acquisition of some large-cap customers like Uber and Splunk.
The strong result has seen a number of brokers come out with "buy" or "add" recommendations for the stock. Currently, Morgans has an "add" rating and a price target of $5.12, whilst Goldman Sachs has a "buy" rating and price target of $4.75.
Capital Raising
In March, Megaport raised $50 million via placement at $4.00 per share. This represented only a 4.8% discount to the closing price of $4.20 on March 12, the day before the capital raising was announced.
It is pleasing to see that Megaport can raise institutional levels of capital with only a limited discount to its share price. However, if there are additional numbers and greater sizes of capital raisings in the future investors may slowly be diluted. Investors must pay particular attention to the use of the funds raised, to ensure that they marry up to the company's strategy and support growth over the long term. Ratios which are "per share" are particularly useful.
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".
Insider selling
Bevan Slattery is the Founder and Executive Chairman of Megaport and is one of the most impressive technology entrepreneurs in Australia. He has been involved in a number of successful ASX listed companies such as NextDC Ltd (ASX: NXT). Megaport announced that he would be selling some of his shares during the capital raise, however, he still retains a 16% shareholding in the company. As such, this isn't of much concern for me.
Foolish bottom line
Megaport is a fast growing company that is priced for perfection. The company's valuation is up in the clouds (pardon the pun) at over 16x annualised revenue. The company has a huge opportunity with strong growth in cloud computing and the need for rapid connectivity. If Megaport can continue to post impressive revenue growth, then with the backing of Mr. Slattery I suspect the business could thrive.
