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

After surging to an all-time high price of $17.67 in August, shares in ASX tech company Megaport Limited (ASX:MP1) have lagged recently despite the company's strong start to FY21.

| More on:
A male ASX investor wearing glasses and a beanie and denim shirt puts his hand to his chin wondering whether to buy ASX shares

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

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.

More on Share Fallers

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why Burgundy Diamond Mines, Clarity Pharmaceuticals, EML, and Zip are sinking today

These ASX shares are ending the week in the red. But why?

Read more »

A worried man holds his head and look at his computer.
Share Fallers

Why 29Metals, Brainchip, Platinum, and Premier Investments shares are falling today

These ASX shares are having a tough time on hump day.

Read more »

Man with his head in his head because of falling share price.
Share Fallers

Why 29Metals, Atlas Arteria, IDP Education, and Mineral Resources shares are falling

These ASX shares are having a tough time on Tuesday. But why?

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why ALS, EOS, NRW, and Patriot Battery Metals are dropping today

These ASX shares are starting the week in the red.

Read more »

A man looking at his laptop and thinking.
Technology Shares

Why are these ASX tech shares getting smashed today?

Owners of these two stocks are missing out today.

Read more »

a man weraing a suit sits nervously at his laptop computer biting into his clenched hand with nerves, and perhaps fear.
Share Fallers

Why AGL, Brickworks, IGO, and New Hope shares are dropping today

These ASX shares are having a poor session. But why?

Read more »

Frustrated stock trader screaming while looking at mobile phone, symbolising a falling share price.
Share Fallers

Why Amcor, Arafura, Brainchip, and South32 shares are tumbling today

These ASX shares are having a tough time on hump day. But why?

Read more »

A young woman holds an open book over her head with a round mouthed expression as if to say oops as she looks at her computer screen in a home office setting with a plant on the desk and shelves of books in the background.
Share Fallers

Why Aussie Broadband, Liontown, Metals Acquisition, and Seek shares are falling

These ASX shares are having a poor session. But why?

Read more »