Here’s why the Aussie Broadband share price is crashing 25% today

Aussie Broadband shares are being smashed on Monday….

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Key points

  • Aussie Broadband shares are being hammered on Monday following the release of a trading update
  • The telco is facing a number of headwinds at present which are impacting its performance
  • The company has downgraded its earnings and broadband connection guidance ranges for FY 2022

The Aussie Broadband Ltd (ASX: ABB) share price is having a very disappointing start to the week.

In afternoon trade, the growing telco’s shares are down 25% to $4.17.

Though, it is worth highlighting that even after this huge decline, the Aussie Broadband share price is still up 38% over the last 12 months.

Why is the Aussie Broadband share price crashing today?

Investors have been selling down the Aussie Broadband share price today amid a market sell-off and the release of an update out of the telco.

In respect to the latter, the company provided investors with an update on its performance during the third quarter. This revealed that Aussie Broadband has continued its solid growth during the period.

For example, total broadband services increased 11% quarter on quarter or 47% year on year to 548,911 services. Combined with voice, mobile, Fetch, and managed services, this took its total services to 697,083. This represents a 10% quarter on quarter increase and a 42% lift year on year.

Aussie Broadband’s managing director Phillip Britt said:

The company has delivered consistent broadband services growth over the last three quarters, and this financial year is on track to be our largest ever for net broadband service additions. This growth is extremely pleasing in a market which is no longer growing and is reliant on customers choosing Aussie and switching from other providers to win market share.

The third quarter remained strong for new white label services, assisted by the largely complete migration for our white label customer. We expect to see continued organic growth in this segment as our white label customer secures ongoing sales driven by industry leading customer service.

Why the sell-off?

There are a few potential reasons, outside the market sell-off, for the weakness in the Aussie Broadband share price today.

In the residential broadband segment, management advised that media buyers have warned that marketing efficiency will be materially impacted during the Federal Election. As a result, the company is stepping back its marketing activities, which is expected to reduce new sales.

Management also advised that it has been struggling to recruit for its call centre during a period of strong growth, white-label migration, and recent network outages. This led to a jump in call volume and wait times for customers, which resulted in increased customer churn late in the third quarter.

Another headwind the company has been facing is in the mobile business. It notes that gaining mobile-only customers is proving challenging due to supply chain issues impacting the availability of mobile handsets.

Other headwinds

Also potentially weighing on the Aussie Broadband share price today is its Connectivity Virtual Circuit (CVC) expense.

With customer usage remaining high, third-quarter CVC expense more than doubled quarter on quarter to $4.9 million from $1.8 million. And while the company was forecasting a rise, this was still 18% greater than its estimates. Management blamed the rise on increased peak time customer usage.

Finally, Aussie Broadband has downgraded the top end of its earnings and active broadband connections guidance ranges for FY 2022.

Instead of full-year earnings before interest, tax, depreciation and amortisation (EBITDA) of $27 million to $30 million, it now expects EBITDA to be $27 million to $28 million. This guidance excludes transaction costs and any contribution from the Over the Wire acquisition.

Whereas total active broadband connections are expected to be in the range of 580,000 to 585,000. Once again, the top end of its range has been trimmed from 580,000 to 590,000 previously.

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. has positions in 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 Scott Phillips.

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