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

The Megaport Ltd (ASX:MP1) share price is on the move on Tuesday following the release of its quarterly update…

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In morning trade the Megaport Ltd (ASX: MP1) share price is sliding lower following its second quarter update.

At the time of writing, the global elastic Interconnection services provider’s shares are down 1% to $12.88.

How did Megaport perform in the second quarter?

For the three months ending 31 December, Megaport recorded solid quarterly growth with underlying monthly recurring revenue (MRR) up 10% quarter on quarter to $6.3 million. This was despite facing currency headwinds from the stronger Australian dollar.

This led to total revenue coming in at $18.7 million for the quarter, which was up 8% compared to the first quarter.

They weren’t the only metrics on the rise. The release advises that customers grew 3% quarter on quarter to 2,043, ports lifted 6% to 6,691, total services rose 6% to 19,278, and Megaport Cloud Routers increased 11% to 382.

Cashflow positive.

Megaport recorded positive net cashflow from operations for the first time during the second quarter. This was earlier than the company expected and was driven by record customer collections.

However, the company isn’t expecting to remain positive with its cashflow in the third quarter. This is due to some one-off annual prepayments. Though, management expects to revert back to positive cashflow from operations on a recurring basis in FY 2022.

Outlook.

Management appears positive on its outlook thanks partly to new data centre partnerships and product launches. These new partnerships include ones with Sungard, Kao Data, and NorthC.

In addition to this, Megaport has continued to bolster its ecosystem of leading service providers with the addition of European cloud provider OVHcloud.

Another key driver of growth could be the impending launch of Megaport Virtual Edge (MVE) in the second half. MVE will provide a platform to virtualise network functionality to enable businesses to connect to services through Megaport from more locations around the globe. This includes branch offices, corporate campuses, and point-of-sale locations.

Cisco is the first technology partner to announce MVE integration with more integration partners planned in the coming quarters.

Megaport’s Chief Executive Officer, Vincent English, commented: “At the halfway mark through Fiscal Year 2021, Megaport is in an excellent position to continue growing our market share for cloud connectivity. The launch of MVE in 2H FY21 will increase our addressable market and open new channel opportunities to strengthen our revenue growth.”

“Achieving EBITDA breakeven on a run rate basis this Fiscal Year remains a priority as we continue to optimise our footprint to maximise margins and move to profitability. As part of our commitment to providing greater value to our customers and partners, we will continue to enrich our ecosystem with new service providers in the coming quarters.”

“Additionally, we have developed an extensive Technology Partner pipeline and are engaged in integration projects which will provide more functionality to MVE. This will continue to expand our addressable market and provide greater choice to our customers as they architect their next generation IT services,” 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. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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