Megaport Ltd (MP1) $15.08

MP1 has undoubtedly been on a wild ride since COVID-19, but things have improved decidedly over the last year. To quote Megaport themselves, in simple English, “Megaport enables direct and dedicated connectivity between data centres and to cloud environments to negate the use of the public internet.”  In other words, they deliver a reliable, secure connection for businesses optimised for a high volume of data which clearly benefits the end user on several levels. MP1 has evolved into a multi-billion dollar business, thanks to its almost 400% appreciation from its 2023 low; the question is, where to go from here?

• Megaport sells provisioned capacity per customer, with the main revenue drivers being the number of customers, required network complexity and size/bandwidth, or, more traditionally, the number of customers and their size.

In today’s rapidly evolving tech market, MP1 is a genuine first-mover that is starting to gather momentum with its high fixed-cost capex infrastructure essentially complete. It’s now time to enjoy the rewards, with revenue forecast to increase by over 50% between 2024 and 2026, aided by the AI tailwind. We believe their ARR growth is set to re-accelerate, helped by low current market penetration, a freshly adopted solutions-based selling strategy, plus the monstrous AI tailwind. We like MP1’s business model, being the market’s go-to reset, which, combined with new product launches, should help drive growth in FY25 and beyond while, importantly, operational leverage is already unfolding, with margins increasing across all regions.

NB ARR Growth Rate is an important performance metric for SaaS companies (software as a service) to measure their success and identify potential risks. It represents the rate of change in a company’s Annual Recurring Revenue (ARR) over time.

• We like MP1 moving forward as a proxy for AI growth, but we shouldn’t forget it’s a very volatile stock that often affords good risk/reward entry for brave investors.