Megaport share price sinks 8% despite juiced-up growth forecast

This market darling upgraded its guidance but is still being sold off. Why?

| More on:
A bored man sits at his desk, flat after seeing the latest news on the share market.

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

The Megaport Ltd (ASX: MP1) share price is under pressure on Monday morning.

At the time of writing, the leading network as a service (NaaS) solutions provider's shares are down 8% to $13.17.

Why is the Megaport share price sinking?

Investors have been selling the company's shares this morning following the release of its quarterly update and despite an upgrade to its guidance for FY 2024.

In respect to the former, according to the release, Megaport's year on year growth continued during the quarter.

It reported revenue of $49.5 million, which is up $11.4 million or 30% year on year. This lifted its annual recurring revenue (ARR) metric to $199 million.

Things were even better for its earnings before interest, tax, depreciation, and amortisation (EBITDA), which almost doubled to $14 million from $7.3 million a year earlier.

However, while this is up strongly year on year, it is actually down 7.3% quarter on quarter. Management blamed this on investing in future growth.

Nevertheless, Megaport's net cash flow for the three months was $13.4 million. This is a big improvement from a cash outflow of $8.5 million in the prior corresponding period.

This led to the company finishing the period with a cash balance of $73.1 million And after accounting for its vendor financing facility of $13.9 million, Megaport has a net cash position of $59.2 million. This is up from $45.8 million at the end of December.

Guidance upgrade

In light of its performance in the third quarter, the company's board has upgraded its earnings guidance for the full year. Its release advises:

[A]s a result of continued improvement in the Company's operating and financial performance, the Company upgrades FY24 EBITDA to be in the range of $56M to $58M, an increase on the previous FY24 guidance of $51M to $57M. This reflects an increase of 177% to 187% compared to FY23 Normalised EBITDA of $20.2M.

While this guidance is in line with Goldman Sachs' estimate of $56 million, it seems the market was pricing in an even stronger performance.

Management also advised that it continues to expect FY 2024 revenue to be in the range of $190 million to $195 million for FY 2024. This represents an increase of 24% to 27% on FY 2023's revenue of $153.1 million. This means that its earnings guidance upgrade is all due to stronger-than-expected margins.

The company's FY 2024 capital expenditure guidance of $20 million to $22 million has also been confirmed by management this morning.

The Megaport share price remains up almost 140% since this time last year despite today's decline.

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 Goldman Sachs Group and 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.

More on Technology Shares

A young man talks tech on his phone while looking at a laptop. A financial graph is superimposed across the image.
Technology Shares

Brokers name 2 rapidly growing ASX 200 tech stocks to buy

These tech stocks could be quality options for growth investors. Let's see why.

Read more »

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

What are 3 of the safest ASX 200 tech shares in Australia right now?

Here's how these tech companies stand out in a turbulent market.

Read more »

A young man pointing up looking amazed, indicating a surging share price movement for an ASX company
Technology Shares

Buy this ASX 200 tech stock now before it's too late: Goldman Sachs

The broker sees potential for some big returns from this tech leader.

Read more »

A man holds his head in his hands, despairing at the bad result he's reading on his computer.
Technology Shares

Why is the Life360 share price sinking 9% today?

This high-flying tech stock has handed in its report card. How did it do?

Read more »

Smiling man working on his laptop.
Technology Shares

ASX tech stock up 54% on positive trading update

Integrated Research had some impressive news for its shareholders today.

Read more »

Two happy excited friends in euphoria mood after winning in a bet with a smartphone in hand.
Technology Shares

Brainchip share price rockets 14% on patent news

Investors are happy with today's news. Let's see what patent has been granted.

Read more »

Technology Shares

4 ASX shares exposed to the 'largest technological change ever seen'

It will accelerate revenue growth and cut costs for many companies, says this expert.

Read more »

Concept image of Bitcoin and hand using laptop.
Cryptocurrencies

Buying Bitcoin? Here's why Block's Jack Dorsey says AI will drive global adoption

Moving forward, Block plans to reinvest some of its monthly profits into Bitcoin.

Read more »