Sales and Profits Look Good in Megaport’s Fiscal Q2, but Stock Volatility Continues

Megaport’s stock dropped 20% after the firm released its fiscal second-quarter sales update, continuing a recent trend of 10%-20% moves in either direction upon the firm’s quarterly report. Some metrics were disappointing in the second quarter, but we see that as noise driving unwarranted volatility, as Megaport has shown that its reported metrics are routinely choppy from quarter to quarter. Megaport’s trajectory has not deviated from its path of rapid sales growth and improving profitability. Halfway through fiscal 2023, Megaport is pacing ahead of our full-year projections for both revenue and adjusted EBITDA. We are maintaining our AUD 15 fair value estimate while we await next week’s release of the full first-half results, but we think the stock is significantly undervalued for long-term investors who can stomach the volatility.