Aussie Broadband (ASX:ABB) share price higher after delivering 49% revenue growth

Aussie Broadband had a mixed half…

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Key points

  • Aussie Broadband delivered strong revenue growth during the first half
  • Operating earnings margins crunched by its investment in promotions and increased usage costs during lockdowns
  • Margins expected to improve in second half

The Aussie Broadband Ltd (ASX: ABB) share price is on the move following the release of its first half trading update.

In morning trade, the telco's shares are up 2.5% to $4.33.

Aussie Broadband share price higher on strong first half growth

  • Total broadband subscribers up 45% year on year to 494,803
  • Total services (broadband, voice, mobile, fetch, managed) up 41% to 636,446
  • First half gross revenue growth of 49% to $237.3 million
  • Marketing expenses up 69% to $16.4 million
  • First half EBITDA (before transaction costs) up 7% to $9.1 million
  • Guidance: Full year EBITDA expected to be $27 million to $30 million

What happened during the first half?

Aussie Broadband had another strong half for subscriber and revenue growth. For the six months ended 31 December, the company recorded a 45% year on year (11% quarter on quarter) jump in broadband subscribers to 494,803. This underpinned a 49% increase in gross revenue over the prior corresponding period to $237.3 million.

However, due to its investment in marketing to grow customer numbers, its operating earnings (EBITDA) was impacted. Management notes that promotions were used extensively to encourage customers already on the NBN to switch to Aussie Broadband. This led to its marketing expense as a percentage of revenue increasing to 12.6% from 11.9%. Combined with higher usage costs during lockdowns, this meant EBITDA grew only 7% to $9.1 million.

Positively, management expects its marketing spend as a percentage of revenue to ease in the second half, which should lead to stronger margins.

In light of this and the end of lockdowns, it is forecasting full year EBITDA in the range of $27 million to $30 million excluding acquisition costs and benefits. This will be up from $19.1 million in FY 2021.

Management commentary

Aussie Broadband's Managing Director, Phillip Britt, commented: "We're very pleased with how all segments have performed across the quarter, despite the Christmas period impacting residential sales slightly. The business segment remained strong. So far in 1H FY22 we have taken 15% of all NBN enterprise ethernet net service activation orders. We continue to be excited about our Carbon platform (our self-service platform for business), it now has more than 10,000 active services and over 400 MSPs (managed service providers) onboarded."

"Whilst first half EBITDA has been impacted by increased promotional costs, and CVC expense due to lockdowns, we expect to see the benefits of operating leverage in 2H FY22 with employee, marketing and administration expenses expected to be lower as a percentage of revenue. The second half will also benefit from the organic connection growth achieved in the first half, additional white label migrations, and operating leverage to produce a full year EBITDA in the range $27m to $30m. This validates our strategy of continuing to invest in connection growth at the expense of short-term EBITDA gains," he concluded.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Aussie Broadband Limited. The Motley Fool Australia has recommended Aussie Broadband Limited. 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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