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The Megaport (ASX:MP1) share price is down 25% since August

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It’s been a topsy-turvy year for shareholders in ASX cloud networking company Megaport Limited (ASX:MP1).

After crashing to a low of $6.11 back in March 2020, the tech company became an unlikely success story during COVID-19. Increased demand for its networking services from companies forced to work remotely during lockdowns drove its share price to a new record high of $17.67 by late August.

However, over the last few months, the Megaport share price has again slid lower, dropping more than 25% to $13.10 as at the time of writing.

What does Megaport do?

Megaport develops customisable “on-demand” network services to corporate clients. It leverages cloud technology to help clients expand their network connectivity beyond the limits of traditional infrastructure. It also gives companies the flexibility to manage their bandwidth usage.

Customers have the ability to scale up their bandwidth requirements when demands are high, and then reduce consumption during off-peak times. This allows companies to be more efficient with their data usage, cutting operational costs.

It’s a pretty nifty service for companies trying to adapt to the new and unique demands of COVID-19 lockdowns, and so it’s no wonder that 2020 turned into a breakout year for Megaport.

The company reported a year-on-year revenue uplift of 66% to $58 million in FY20. And, after executing two successful capital raisings during the year, Megaport ended the financial year with a cash position nearing $170 million, giving it a solid platform to pursue future growth opportunities.

Recent news out of the company

In its December quarter cash flow report, released to the market on 19 January 2021, Megaport recorded quarterly revenues of $18.7 million, an uplift of 8% over the prior quarter. The company also reported its first ever quarter of positive net cash flow from operations.

Megaport did caution that it expects some one-off annual payments later in the year may mean net cash flow from operations will dip into negative territory again this year, but it anticipates this to be positive on a recurring basis from FY22 onwards.

The company is also planning to launch its “Megaport Virtual Edge” over the next 6 months. This gives customers the ability to connect to Megaport’s ecosystem from anywhere in the world. This allows companies to create their own file sharing networks, and exchange data between clients, fellow staff and other offices securely and easily.

FY21 outlook

Megaport hasn’t provided any firm revenue targets for FY21. However the company has identified a key goal of achieving breakeven earnings before interest, tax, depreciation and amortisation (EBITDA) on an exit run rate basis by the end of FY21. Based on the current Megaport share price, the company has a market capitalisation of $2 billion.

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Rhys Brock owns shares of MEGAPORT FPO. 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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