Megaport’s FY25 Performance: Strong Results but Market Reaction Mixed
Overview
Megaport (ASX: MP1) announced commendable results for the fiscal year 2025 (FY25), showcasing a 20% increase in annual recurring revenue to a record $243.8 million, along with a robust cash reserve of $102.1 million aimed at fuelling further growth. Despite this, the stock opened down by 19% at $11.86 and saw a dip of up to 22% during the trading day, reaching $11.52. This article delves into the details of the financial results and the market’s response.
Financial Highlights for FY25
Key figures from FY25 include:
- Underlying Revenue: Increased by 13% to $220.8 million against estimates of $222.6 million, falling short by 1%.
- EBITDA: Rose by 11% to $52.3 million, outperforming estimates of $50.7 million by 3%.
- EBITDA Margin: Decreased by 50 basis points to 28.2%, better than the estimated 27.3%, indicating a 90 basis point advantage.
- Underlying EBITDA: Remained stagnant at $57 million, missing projections of $60.7 million by 6%.
- Underlying EBITDA Margin: Slipped by 40 basis points to 25.8%, underperforming against estimates of 27.3% by 150 basis points.
- Capital Expenditure (Capex): Jumped 73% to $34.4 million, exceeding market predictions of $30.2 million by 14%.
Market Reaction and Concerns Over Capex
The significant rise in capex for both FY25 and FY26 surprised the market. The FY25 capex of $34.4 million was notably higher than anticipated, while the outlook for FY26 estimates capex at 18-20% of revenue. Analyst Jonathan Atkin from RBC Capital Markets suggested this could lead to FY26 capex between $46 million and $54 million, a staggering 50-73% above consensus forecasts.
Key guidance figures shared by Atkin include:
- FY26 Revenue Guidance: Expected to be between $260 million and $270 million, translating to a growth of 15-19% year-on-year, surpassing the consensus estimate of $254 million by 2-6%.
- FY26 EBITDA Margin: Projected to be between 18-20%, indicating an EBITDA of $47 million to $54 million, which is 22-33% lower than the consensus expectation of $70 million.
- FY26 Capex Guidance: Estimated to be between 18-20%, suggesting a capex of $47 million to $54 million, considerably higher than the consensus of $31 million.
Insights from the Earnings Call
E&P analyst Paul Mason observed that the earnings call was notable, with Megaport’s CEO, Michael Reid, attempting to project optimism even as the stock price declined by 15%. Reid expressed his vision for significant business opportunities and indicated a firm commitment to growth investments, reflecting the company’s strategic focus on expansion.
Mason’s team prioritises sustainable growth over immediate margin returns and views Megaport’s results positively, highlighting the rarity of companies achieving growth without heavily relying on pricing strategies. He anticipates long-term investors to regain confidence in the stock following robust key performance indicators, setting up a solid revenue base for FY26.
Intraday Performance and Market Sentiment
Remarkably, by midday AEST, Megaport’s stock was trading near breakeven despite the earlier downturn. Investors who bought at the open saw a potential upside of around 22%. It appears that the market swiftly brushed aside concerns regarding the capex increase, which is consistent with broader trends seen in AI-related sectors.
As analysts take time to reassess the provided numbers and their implications for upcoming earnings, Friday’s stock performance will be closely monitored.
Conclusion
While Megaport’s FY25 results reflect strong revenue growth and cash reserves, the unexpected rise in capital expenditure has generated mixed market reactions. Future performance will hinge on how effectively the company can leverage its investments and what impact this will have on near-term earnings and overall market sentiment.
