Megaport Ltd (ASX: MP1) shares had a day to forget on Thursday.
The network as a service provider's shares ended the day a whopping 21% lower at $9.32.
Why did Megaport shares crash deep into the red?
Investors were rushing to the exits after the company released its full year results.
For the 12 months ended 30 June, Megaport reported a 28% increase in revenue to $195.3 million and a 182% jump in EBITDA to $57.1 million.
While this was clearly a strong result and largely in line with expectations, it wasn't enough to offset guidance that fell short of the market's estimates.
In response to the result, Goldman Sachs said:
Revenue growth guidance of +11-15% (cc) is well below expectations, and implies a deceleration in either subscriber growth (+6% in FY24) or ARPU growth (c9%, ex pricing) into FY25, despite the significant product/GTM investments being made.
This was attributed to a decline in net revenue retention – which we believe relates to customers optimizing services on MP1 – given mgmt. re-iterated they have seen no increase in churn, and operating metrics, albeit soft, didn't deteriorate in 4Q24 – particularly given the commentary around high-value customer performance (i.e. +20% increase in customers with ARR > 100k in FY24); (2) Higher SBC in FY24 impacting earnings – we don't expect FY24 levels to repeat, but do revise higher forecasts.
Should you buy the dip?
Goldman has been busy looking over the result. And while it was disappointed with its guidance, it believes the selling has been overdone and created a compelling buying opportunity.
According to the note, the broker has retained its buy rating on Megaport's shares with a reduced price target of $12.00 (from $14.00).
Based on its current share price of $9.32, this implies potential upside of 29% for investors over the next 12 months.
Goldman continues to believe that Megaport has a bright future and decade-long runway for robust growth. It concludes:
We believe MP1 will benefit from strong structural tailwinds from the adoption of public cloud including multi-cloud usage and the transition towards NaaS technologies. While acknowledging mixed near-term execution around the partner channel and the new MVE product, we are Buy rated on the name as we remain confident MP1 has a clear product advantage vs. peers and a decade-long runway for robust growth.
Despite the soft operational trends in recent periods, we expect still robust top-line growth, with the increased focus on profitable growth supporting an attractive earnings profile over FY24-26. Key catalysts include further direct sales momentum, MVE product growth (noting a longer sales cycle), potential new product launches and continued industry M&A.
