Why did the Megaport share price crash 22% today?

Megaport's shares were sold off on Wednesday…

| More on:
A surprised man sits at his desk in his study staring at his computer screen with his hands up.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It has been a day to forget for the Megaport Ltd (ASX: MP1) share price.

The network-as-a-service provider's shares ended the day a whopping 22% lower at $6.61.

Why did the Megaport share price crash deep into the red?

Investors have been selling down the Megaport share price today following the release of the company's first quarter update.

Although Megaport delivered quarter on quarter growth across almost all key metrics, it appears as though investors were expecting stronger numbers.

For the three months ended 30 September, the company reported a 9% (6% constant currency) increase in monthly recurring revenue (MRR) to $11.6 million.

This led to its quarterly revenue increasing 10% quarter on quarter to $33.7 million and its annualised recurring revenue lifting 8.3% to $139 million.

This was driven partly by a modest 2% increase in customer numbers to 2,700 and a 1% increase in total ports to 9,606. Though, the latter reflects non-revenue impacting customer-related port consolidation. This follows an increase to capacity on its cloud connections with 100 Gbps on-ramps.

What else?

One metric that went backwards during the quarter was its installed data centres, which could have investors a little concerned.

Megaport's services are installed in 422 data centres now, down from 423 data centres three months earlier. And while one less centre may not be something to panic about, investors may fear that this is a sign that its footprint is peaking.

Another metric that may have caught the eye was Megaport's cash balance. Although it was profitable at an EBITDA level for a second quarter in a row, it is still burning through cash.

The company ended the quarter with a cash position of $69.4 million. This is down $13.1 million from $82.5 million at the end of June. Based on this cash burn rate, the company has 5.3 quarters of cash left.

Short sellers will be happy

One group of investors that will be happy with the Megaport share price weakness is short sellers.

As we covered here at the start of the week, the company is one of the most shorted shares on the Australian share market right now.

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 FPO. The Motley Fool Australia has recommended MEGAPORT FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Technology Shares

Man holding a calculator with Australian dollar notes, symbolising dividends.
Technology Shares

$10,000 invested in DroneShield shares 5 years ago is now worth…

You might be laughing all the way to the bank if you had done this.

Read more »

Happy woman working on a laptop.
Technology Shares

Up 60% since April, why this $40 billion ASX 200 tech stock remains a 'compelling buy' today

A leading expert believes this $40 billion ASX 200 tech stock has a lengthy growth runway ahead of it yet.

Read more »

A man holds his head in his hands, despairing at the bad result he's reading on his computer.
Technology Shares

DroneShield shares sink 7% despite big news

Let's see what's going on with this market darling on Thursday.

Read more »

A man activates an arrow shooting up into a cloud sign on his iPad.
Technology Shares

Up 25% since April, is it too late to buy Xero shares today?

A leading expert gives his verdict on the growth outlook for Xero shares.

Read more »

Man looking at digital holograms of graphs, charts, and data.
Technology Shares

2 amazing ASX tech shares I wish I'd bought last year

These tech companies are among the world’s best companies.

Read more »

A man in a business suit and tie places three wooden blocks with the numbers 1, 2, and 3 on them on top of each other.
Broker Notes

3 reasons to buy this booming ASX All Ords tech stock today

A leading broker forecasts more gains to come from this surging ASX All Ords tech stock.

Read more »

Man ponders a receipt as he looks at his laptop.
Technology Shares

Brokers rerate 3 leading ASX 200 tech stocks

Experts reveal their ratings on the ASX 200 tech sector's three biggest companies.

Read more »

Hologram of a man next to a human robot, symbolising artificial intelligence.
AI Stocks

Why Macquarie forecasts a big rebound for these 2 quality ASX All Ords tech stocks

Macquarie expects a big rebound is coming for these AI linked, ASX All Ords tech stocks.

Read more »