Megaport share price launches 40% higher amid rosy guidance

This ASX-listed technology company just posted its quarterly report and the market is eating it up.

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The Megaport Ltd (ASX: MP1) share price is off like a racehorse on Friday morning following the company's third-quarter report.

Early into the trading day, shares in the software-defined network provider are fetching $5.59 – a staggering 40% above yesterday's closing price. The move is a refreshing one for shareholders after enduring a debilitating 35% decline throughout this year prior to today, as shown below.

Fortunately, the market is rejoicing in the latest results. Let's unpack the quarterly figures to understand why that might be.

Growing revenue and improving earnings

Before we dive into the thick of it, here are some of the high-level numbers posted by Megaport this morning:

  • Total quarterly revenue up 38% year-on-year to $38.1 million
  • Monthly recurring revenue (MRR) up 48% to $14.1 million
  • Reported EBITDA swinging to a positive $7.2 million from a $12.1 million loss
  • Total services added during the quarter of 607, down from 762 in the prior quarter
  • Cash burn of $8.9 million from the third quarter with $48.6 million in cash remaining

Indicative of today's response to the Megaport share price, it was a solid quarter for the on-demand cloud connector. Receipts from customers reached $40.9 million, marking an improvement of 14% compared to the prior quarter.

Furthermore, shareholders are possibly pleased to see Megaport's management recognise and address issues that may have inhibited the company's performance. For example, an operational review found the 'Scale Up, Scale Out' did not produce the expected returns from the increased costs.

Following the review, management plans to implement strategy changes and reduce costs. As a result, management is now forecasting drastically improved EBITDA guidance for FY23 and FY24 compared to market consensus, bolstering the Megaport share price.

The updated forward guidance is as follows:

  • FY23: Normalised EBITDA of $16 million to $18 million vs. $9 million consensus
  • FY24: Normalised EBITDA of $41 million to $46 million vs. $30 million consensus

The improved earnings and cash flow mean management does not foresee the need to raise additional capital to further fund operations.

Why the rocket-like reaction to the Megaport share price?

It's not every day a company leaps 40% or more — even on positive earnings — so why is the market responding in such extreme fashion to Megaport?

Well, as we covered on Monday, the technology company found itself on the most shorted ASX shares list once again this week. Racking up a mighty 11.2% short interest, Megaport was the second most-shorted share on the ASX heading into its quarterly report.

Likely many shorters are scampering to exit their positions and buy back shares to stem the bleeding today. In turn, the Megaport share price has behaved like a tightly compressed spring set free.

Motley Fool contributor Mitchell Lawler 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 Megaport. The Motley Fool Australia has recommended Megaport. 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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