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

A businessman looking at his digital tablet or strategy planning in hotel conference lobby. He is happy at achieving financial goals.
Technology Shares

Here are 2 exciting ASX shares rated as buys

These shares are highly rated by brokers. Let's find out why.

Read more »

Two IT professionals walk along a wall of mainframes in a data centre discussing various things
Technology Shares

Is this the decade of the data centre? One ASX 200 stock that could benefit

Let's see why one leading broker thinks this stock could be destined for big things.

Read more »

A human-like robot checks out market performance on a laptop, indicating the rise of AI shares.
Technology Shares

3 top performing ASX AI shares for your watchlist

Have you positioned your portfolio to capitalise on the next tech revolution?

Read more »

Two IT professionals walk along a wall of mainframes in a data centre discussing various things
AI Stocks

3 reasons to buy NextDC shares today

A leading expert forecasts more growth to come for NextDC's rebounding shares.

Read more »

A share market analyst looks at his computer screen in front of him showing ASX share price movements
Technology Shares

Why this $3.9 billion acquisition makes Xero shares a buy today

A leading expert forecasts that Xero’s $3.9 billion investment is about to pay off.

Read more »

Three young people in business attire sit around a desk and discuss.
Small Cap Shares

Tiny tech: 3 ASX small-cap shares with new ratings

Toby Grimm of Baker Young and Peter Day of Sequoia Wealth Management share their new ratings.

Read more »

Smiling young parents with their daughter dream of success.
Technology Shares

Could Life360 shares rise to $37.50?

Bell Potter has given its verdict on this tech stock.

Read more »

Man smiling at a laptop because of a rising share price.
Technology Shares

Investors should put these 2 top ASX tech shares on the watchlist

Looking for growth? These two stocks are delivering.

Read more »