It was a month to forget for the Megaport Ltd (ASX: MP1) share price in October.
The elastic interconnection services provider’s shares were well and truly out of form last month and recorded a 16.3% decline.
Why did the Megaport share price crash lower?
The Megaport share price came under pressure last month for a couple of reasons.
The first was general weakness in the tech sector late on in the month that weighed on the likes of Megaport and Zip Co Ltd (ASX: Z1P).
The other catalyst for this decline was the company’s first quarter update.
It appears as though investors were disappointed with Megaport’s slower than normal revenue growth during the quarter.
For the three months ended 30 September, the company recorded revenue of $17.3 million, up 2% since the end of the previous quarter. This led to its monthly recurring revenues (MRR) also increasing 2% quarter on quarter to $5.8 million.
Management advised that its growth would have been stronger if the Australian dollar hadn’t appreciated as much as it did. This adversely impacted its MRR by $0.2 million and its total revenue by $0.3 million.
In addition to this, slower net customer and port additions in the fourth quarter of FY 2020 also had a negative impact on its performance.
What about the future?
The good news is that the company did report strong growth in port numbers during the quarter. Megaport posted a 10% quarter on quarter increase in Total Ports to 6,333.
As this is a leading indicator for growth, it is likely to bode well for its second quarter performance.
Another positive is that its CEO, Vincent English, revealed that the company is still aiming to become breakeven in FY 2021.
He commented: “Profitability remains a company-wide priority. We are focused on achieving EBITDA breakeven on an exit run-rate basis by the close of Fiscal Year 2021 by driving further customer growth across all regions.”
“With our SDN reaching over 700 enabled data centres across 24 countries, we are well positioned to capture the demand for elastic interconnection to support the ever-increasing surge of data powered by the digital economy,” he concluded.
Should you buy the dip?
I think last month’s weakness in the Megaport share price could be a buying opportunity for long-term focused investors.
Due to its leadership position in a market that looks set to benefit greatly from the cloud computing boom, I believe the future is very bright for Megaport.
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Returns as of 6th October 2020
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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends MEGAPORT FPO. The Motley Fool Australia has recommended MEGAPORT FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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