Why is the Megaport share price rocketing 17% today?

The Megaport Ltd (ASX: MP1) share price is on fire on Tuesday morning.

In early trade, the elasticity connectivity and network services interconnection provider’s shares are up 17% to $11.48.

Why is the Megaport share price rocketing?

Investors have been buying the company’s shares this morning following the release of its quarterly update.

For the three months ended 31 December, Megaport reported total revenue of $48.6 million. This was an increase of 5% quarter on quarter and 31% year on year. This was driven by continued growth in customers and total services across all regions.

It was a similar story for its annual recurring revenue (ARR), which stood at $191.7 million at the end of the second quarter. This is up 1% quarter on quarter and approximately 27% year on year.

Management notes that its growth would have been stronger but was negatively impacted by significant foreign exchange headwinds from a strengthening Australian dollar. Underlying ARR excluding the impact of foreign exchange grew $7.6 million or 4% in the quarter.

Pleasingly, a strong turnaround in profitability while still investing in growth saw Megaport deliver positive EBITDA of $15.1 million for the quarter.

And while this is flat quarter on quarter, that’s because it reflects the increase in expenditure to reignite its go-to-market engine. This includes additional costs for sales, marketing and customer success staff, events, marketing and travel, offset by the growth in revenue.

On an annual basis, Megaport’s EBITDA was up $12.7 million or 500%+ from $2.4 million in the prior corresponding period.

Another positive that is giving the Megaport share price a boost is its cash flow. Megaport generated positive net cash flow of $6.9 million, which is up 23% quarter on quarter and by $18 million year on year.

This left the company with a cash balance of $62.5 million, which is an increase of $7.3 million since the end of September.

Business update

Management also provided investors with a few comments in relation to how the business is performing. It said:

The investment in our go-to-market (GTM) engine to drive future top-line growth is continuing, with North American Sales team hiring now complete and all roles “in seat”. […] With the team now successfully built out, focus has shifted towards improving the effectiveness of the GTM engine. This includes optimising lead generation, nurturing the pipeline of opportunities, and simplifying and elevating both the sales process and GTM operating models and tools.

In addition, the company’s Global WAN as a Service is starting to generate meaningful revenue. It said:

Our focus on delivering Global WAN as a Service is gaining traction with customers, as evidenced by a three-year agreement signed with a major US healthcare provider. With operations spanning multiple US states, this project enabled the customer to overhaul their IT infrastructure to connect eight data centres, modernise their point-to-point connectivity, and deliver diversity at the port level. This Global WAN solution enabled a significantly larger deal size, generating $1.4M in ARR and $4.2M in total contract value.

The Megaport share price is up 50% over the last 12 months.

The post Why is the Megaport share price rocketing 17% today? appeared first on The Motley Fool Australia.

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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 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.

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