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Why the Megaport (ASX:MP1) share price is dropping lower today

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In morning trade the Megaport Ltd (ASX: MP1) share price is dropping lower following the release of its first quarter update.

At the time of writing the leading elastic interconnection services provider’s shares are down 4% to $16.07.

How did Megaport perform in the first quarter?

Megaport continued its positive form in the first quarter, delivering further growth in recurring revenues, albeit at a slower than normal rate.

For the three months ended 30 September, Megaport recorded revenue of $17.3 million, up 2% since the end of the previous quarter. This led to its monthly recurring revenues (MRR) also increasing 2% quarter on quarter to $5.8 million.

This revenue growth would have been stronger if the Australian dollar hadn’t appreciated during the three months. Management notes that this adversely impacted its MRR by $0.2 million and its total revenue by $0.3 million. Also weighing on its revenue growth was slower net customer and port additions in the fourth quarter.

Growing at a stronger rate was its customer base. At the end of the quarter, Megaport’s customer numbers reached 1,980. This was up 7% since the end of the last quarter. It was a similar story for its Total Enabled Data Centres, which grew 5% quarter on quarter to 702.

Finally, a key highlight was a 10% quarter on quarter increase in Total Ports to 6,333. This is a leading indicator for growth, which is likely to bode well for the second quarter.

At the end of September, the company’s cash position was $152.8 million.

How did Megaport perform in different markets?

Management notes that its growth was strongest in the North American and APAC regions. North American MRR grew 11% in local currency and Asia Pacific MRR lifted 4%.

In Europe, MRR declined quarter on quarter due to a one-time change in Internet Exchange contract pricing. This was undertaken to secure long term strategic customers which will be competitive and stable going forward.

MRR growth from the second quarter onwards is expected to benefit from the record increases in Ports and customers this quarter.

Outlook.

Vincent English commented: “Megaport remains committed to driving value for our customers, partners, and shareholders. We are constantly evolving our platform so our customers can more easily connect with the services they need to power their business. MVE [Megaport Virtual Edge] will play a fundamental part in our success by allowing our customers to access Megaport’s elastic interconnection platform from locations beyond traditional data centres — including branch offices, corporate campuses, and point-of-sale locations.”

Mr English also revealed that the company is focused on becoming breakeven on an operating profit basis this year.

The CEO explained: “Profitability remains a company-wide priority. We are focused on achieving EBITDA breakeven on an exit run-rate basis by the close of Fiscal Year 2021 by driving further customer growth across all regions.”

“With our SDN reaching over 700 enabled data centres across 24 countries, we are well positioned to capture the demand for elastic interconnection to support the ever-increasing surge of data powered by the digital economy,” he concluded.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends MEGAPORT FPO. The Motley Fool Australia has recommended MEGAPORT FPO. 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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