NextDC share price sinks 6% despite record result. What's going on?

NextDC's guidance for FY 2024 appears to have disappointed the market.

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The NextDC Ltd (ASX: NXT) share price is starting the week in the red.

In morning trade, the data centre operator's shares were down as much as 6% to $12.81.

This follows the release of the company's FY 2023 results before the market open.

NextDC share price lower despite record result

  • Revenue up 25% to $362.4 million
  • Underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) up 15% to $193.7 million
  • Operating cash flow up 8% to $126.5 million
  • Capital expenditure up 14% to $690.4 million
  • Liquidity of $2.3 billion

What happened during the 12 months?

For the 12 months ended 30 June, NextDC outperformed its revenue guidance with a 25% increase to a record of $362.4 million. The company's guidance range stood at $350 million to $360 million for FY 2023.

This was underpinned by a 47% increase in contracted utilisation to 122.2MW, a 13% lift in customer numbers to 1,820, and a 7% rise in interconnections to 17,816. The latter represents 7.1% of FY 2023 recurring revenue.

Things were almost as good for NextDC's record EBITDA of $193.7 million, which was up 15% year on year and within its guidance range of $192 million to $196 million.

How does this compare to expectations?

Goldman Sachs was pleased with the company's FY 2023 results, which it notes were broadly in line with expectations. It said:

NXT reported FY23 Sales/Adj. EBITDA /Adj. NPAT of A$362mn/A$194mn/-$16mn (excl. Asia losses, and Associates), that was +2%/-0%/-$13mn vs. GSe, with revenue and EBITDA inline with prior guidance while interest expense came in higher than expected.

However, the broker was a touch disappointed with its guidance for FY 2024, which it highlights was lower than expected for earnings and higher for capital expenditures. More on that below.

Management commentary

NextDC's CEO and managing director, Craig Scroggie, was pleased with the company's performance and is very positive on its outlook. He commented:

We are pleased to deliver another record result in FY23, with strong growth in revenue, underlying EBITDA and contracted utilisation. The Company is accelerating its development activities to grow our inventory in line with elevated customer demand.

With liquidity of approximately A$2.3 billion, NEXTDC is exiting FY23 in a strong financial position to be able to take advantage of the opportunities presented by the exponential tailwinds of enterprise modernisation and cloud computing, in addition to the unprecedented acceleration of AI-driven applications driving one of the most powerful computational transformations in our lifetime.


NextDC is guiding to total revenue of $400 million to $415 million, representing growth of 10.4% to 14.5%.

Whereas for underlying EBITDA, it is expecting this to come in between $190 million and $200 million. This represents growth of just 2% to 3.25% year on year.

This slowing earnings growth is being driven by a step change in the company's cost base ahead of material uplift in installed capacity to reflect significant customer order wins in recent months. Pleasingly, operating leverage is projected to accelerate in line with the conversion of the forward order book to revenue from FY 2025.

Commenting on the guidance, Goldman Sachs said:

[T]he company is guiding to FY24 (1) Revenues $400-415 (GSe $417.5mn, Visible Alpha Consensus Data $411mn); (2) Underlying EBITDA (ex-Asia losses) $190-200mn (GSe $214mn, VA headline $210mn.

Also likely to be weighing on the NextDC share price is the company's capital expenditure guidance of $850 million to $900 million. This is up from $687 million in FY 2023 and compares unfavourably to Goldman's estimate of $527 million and the consensus estimate of $458 million. However, prior estimates exclude the recent M2 contract announcements.

Motley Fool contributor James Mickleboro has positions in Nextdc. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. 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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