Megaport Ltd reports: Should you buy at this share price?

The Megaport Ltd (ASX:MP1) share price is glass flat today.

Tom Richardson

Tom is a holder of the CFA Society of the UK administered Investment Management Certificate (IMC) and has more than a decade's professional experience in the investment management industry in Australia and the UK. Tom now works as a writer and editor for TMF Australia and has two easy to remember rules of investing he likes to follow. Avoid overpaying for growth stocks and avoid paying at all for stocks that are cheap for a reason. Tom prefers growth investing over value investing and says it's not rocket science, just avoid overpaying for the best returns.

Published February 21, 2017 12:12 pm AEDT

Adjustable bandwith connectivity startup Megaport Ltd (ASX: MP1) saw its shares trade flat today after the company revealed its financial results for the half-year period ending December 31 2016. Below is a summary of the results.

Net loss for the half year was $13.7 million
Total revenue was $4.59 million
Total monthly recurring revenue was $909,000, up 311% from December 2015
Average revenue per port increased to $615, up $197 or 47%
The group has a cash position of $24.2 million
The group raised $30 million in two separate capital raisings over the period
Completed the acquisition of Germany-based Peering GmbH in August 2016
Director and ex-CEO Denver Maddux resigned effective 21 February

Megaport is still a young business in a niche space and does have some exciting potential, although for investors there's no getting past the headline $13.7 million loss for the period.

Given that it has cash on hand of $24.2 million it's possible that investors could be asked to tip more money into the business in the years ahead having been asked to put their hands in their pockets twice in the prior year.

Thanks to the cash burn the group has been expanding all around the world with total data centres up to 141 versus 102 in June 2016. It also now operates in 19 different countries. Still the company will need to win clients for its services at strong rates to lift operating cash flows with payments to suppliers and employees sitting at more than triple operating revenues currently.

It's also worth noting that the Bevan Slattery founded and chaired Megaport has lost its CEO, Denver Maddux, this month in a move that suggests the founder may have been underwhelmed with the company's progress so far. Although it is worth noting Mr. Slattery lavished praise on Mr. Maddux in his departure note.

Megaport remains an interesting prospect, but its current financials mean investors are better off looking at profitable tech stocks in my opinion. I would prefer the likes of Altium Limited (ASX: ALU) or TPG Telecom Ltd (ASX: TPM) for investors looking to get exposure to rising online connectivity and the growing demand for data.

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