Investing.com - Megaport Ltd (ASX:MP1), a leader in virtual networking technology, encountered a sharp drop in its share price on Thursday morning. The release of its recent quarterly update triggered a substantial sell-off, causing the stock to plummet $1.88 from Wednesday's closing price of $11.51, translating to a staggering 16.3% loss.
The quarterly update, which was shared before the market opening, might have been the catalyst for the precipitous sell-off. Megaport, like many of its peers in the tech sector, has been striving to transition from a cash-burning entity to a financially sustainable business over the past year.
The update for the September quarter reflected encouraging progress, showcasing record earnings and positive cash flow:
- EBITDA increased to $15 million, up from $14 million a year ago
- Cash flow from operating activities reached a positive $10.7 million
- Revenue rose by 5% from the previous quarter to $46.5 million
- Annual recurring revenue set a new record at $189.8 million, up 5% from the previous quarter
Megaport's CEO, Michael Reid, suggested that the first quarter of this fiscal year has "set the tone." He recognized that regaining momentum and rebuilding would require time, but the company's commitment to investing in go-to-market strategies, increasing sales headcount, enhancing the network, and introducing new products underlines their dedication to delivering exceptional value for customers and propelling annual recurring revenue growth.
Despite these seemingly positive results, Megaport shares experienced a rapid sell-off. One possible explanation could be the relatively modest customer growth, with total services increasing by only 2% from the June quarter and net new customer ports seeing a mere 1% increase.
Another contributing factor could be the substantial sell-off of tech stocks in the U.S. overnight. The NASDAQ Composite Index, heavily weighted with technology stocks, experienced a significant 2.43% drop for the day, pushing it into correction territory. The index has now experienced a loss exceeding 10.6% since the end of July, surpassing the correction threshold of a 10% loss.