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Can Macquarie Telecom (ASX: MAQ) become the next NextDC?

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Data warehouse operator Nextdc Ltd (ASX: NXT) sometimes seems like the forgotten sibling of the WAAAX companies – the Tiffany to their Ivanka. But while Afterpay Ltd (ASX: APT) and co hog the media spotlight, NextDC diligently goes about growing its business. And notching up stellar financial results.

NextDC shrugged off the effects of COVID-19 to deliver earnings at the upper end of guidance for FY20. Total revenue grew 14% year-on-year to $205.2 million, while underlying earnings before interest, tax, depreciation and amortisation expenses (EBITDA) shot up 23% to $104.6 million. Not only that, but with a market cap now exceeding $5 billion, NextDC has broken into the ASX top 100.

But as Yoda famously stated: “There is another”. By focussing on the success of NextDC, we might be downplaying the exploits of another growing ASX data warehouse company, Macquarie Telecom Group Ltd. (ASX: MAQ) – the Eric to NextDC’s Don Jr, to keep the Trump analogy going.

About the Macquarie Telecom share price

Macquarie started out positioning itself as a telecommunications rival to Telstra Corporation Ltd (ASX: TLS), particularly for medium sized businesses and government. It has since grown into a diversified technology and communications business with four core segments. These include cloud services, government, telecom and data centres.

Its data centre business has notched up an impressive list of clientele, including the Department of Foreign Affairs and Trade, as well as ASX-listed Westpac Banking Corp (ASX: WBC) and News Corporation (ASX: NWS).

Macquarie’s full year revenue for FY20 was $266.2 million, a year-on-year increase of 8%. EBITDA rose 25% to $65.2 million. Despite a lower EBITDA, this result compares quite favourably against NextDC.  While NextDC posted an overall net loss after tax of $45.2 million for FY20, the Macquarie Group was profitable by $13.5 million.

Macquarie will massively ramp up investment in its data centre operations in FY21. It plans to invest up to $85 million next year to complete its Macquarie Intellicentre 3 East data centre This will almost triple the group’s data centre capacity from 10MW to 28MW.

Keep in mind that this is dwarfed by the $400 million NextDC plans to spend in FY21 expanding its data centre infrastructure. But it shows that Macquarie sees a strategic commercial opportunity in the data centre space. Macquarie also plans to start reporting its Data Centres business as a separate segment from FY21 onwards, showing the confidence it has in the success of this area of its operations.

Should you invest?

As an under-the-radar player in the data centre space, there is plenty to recommend about Macquarie. It is a well-diversified business with a high net promoter score, indicating a loyal customer base. As it targets mid-sized businesses and government, there may also be room for it to grow without needing to battle outsized rival NextDC.

However, the Macquarie Telecom share price has skyrocketed this year – up almost 100% to $45.80 as at the time of writing. FY21 is an investment year for the company, so there could be some pullback in its share price over the next 12 months as capital expenditure puts pressure on EBITDA, particularly over the second half. But if it can deliver on its growth potential, Macquarie may be a great company to own for FY22 and beyond.

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Rhys Brock owns shares of AFTERPAY T FPO and NextDC. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO. The Motley Fool Australia has no position in any of the stocks mentioned. 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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