Feb 9, 2023

Megaport reports $70 million in revenue but cash burn subdues enthusiasm Time is money. Speed is customers’ expected ROI. And data security is everything. If the recent China-US balloon war has taught us anything, it’s that your company’s intelligence is your most valuable—and hunted—asset. That’s what encouraged many organisations to initially set up their own networks to avoid exchanging sensitive information on a public one. However, that’s hard work. Setting up your own network consumes time, money and patience—not just once, but in the long run because you have to look after its upkeep. Network-as-a-Service (NaaS) providers like Megaport (ASX: MP1) are changing that. Founded in 2013, the Company provides private point-to-point connectivity between networks with improved security. There are plenty of takers for this tech. In December 2022, Megaport reached 2,739 customers across 802 Enabled Data Centres in 150 cities, up from 138 in 2021. It generated monthly recurring revenue of $11.95 million. Most of these data centres (435) are located in North America. In H1 FY23, its revenue increased by 38% to $70.7 million, driven by customer growth and service uptake across all regions. North America brought the bulk at $38 million, followed by Asia Pacific and Europe. Its EBITDA increased considerably by 142% to $3.17 million, and its profit increased by 50% to $46.5 million. Compared to 2021, its loss improved by 33% to $13.5 million, with employee and depreciation expenses representing the highest costs. While much has advanced, the Company’s cash equivalents declined from $81.9 million in June 2022 to $56.4 million in December 2022. Its cash used in financing and investing activities increased significantly since December 2021. With Megaport, users can quickly connect to the Company’s partner data centres, cloud service providers, network service providers and managed service providers, collectively known as the Ecosystem. It partners with the world’s top cloud service providers, including AWS, Microsoft Azure, and Google Cloud, as well as the most significant data centre operators, systems integrators and managed service providers. In H1 FY23, Megaport announced a new strategic partnership with Zenlayer, a cloud services provider, giving Megaport customers access to Cloud-as-a-Service (CaaS) and vice versa for Zenlayer users. So you get a private network, cloud data storage, and workspace solution all in one place. Moreover, the Company delivered two commercial deployments of MegaportONE—a white-label, Software-as-a-Service (SaaS) platform. One deployment focuses on cloud architecture orchestration and management, and the other on activating core software-defined networking capabilities. In Q2 FY23, the Company saw a 3.7% increase in average revenue per Megaport, or port, to $1,260, a new record, and an increase in the average number of services per port to 2.97 from 2.95 in September. Multi-cloud customers grew by 32% as the ability to toggle between multiple cloud platforms on one network became an exciting prospect. Put simply, more and more customers are adopting its cloud and network services, especially as the hybrid work model prevails, and cybersecurity becomes increasingly crucial. Like most companies, Megaport has not been immune to the ongoing disturbed economic cycles. Customers who are interested in its services are hesitant about putting their money where their mind is. They have to reevaluate their financial priorities before investing in Megaport products. The Company hopes that, as economic circumstances ease, organisations will look to its NaaS, CaaS and SaaS products to transform their workflow.