Metro fiber specialist abvt reported earnings this morning, showing why they had the confidence to announce a two-for-one stock split last week. Revenue of $88.0M grew sequentially from $85.4M in the first quarter despite the recession. Adjusted EBITDA of $38.5M was also up sequentially from last quarter’s unexpectedly high $38.2M. EBITDA margins fell slightly from 44.7% to 43.8%, but remain above 40% and higher as anyone has any right to expect in this sector. Earnings per share of $1.95 were, also very strong. A few more datapoints and we will have to start believing them, eh?
The numbers were strong enough that the company was able to raise full year revenue guidance to $350-355M from $340-350M. Those numbers remain conservative, which isn’t a shock given the fact that we are still in a recession. But it is quite clear that the metro fiber business remains very strong despite the economic environment. Strong enough to produce the cash flow needed for its own expansion for the most part. Kind of makes you wonder where we would be if carrier capex weren’t being compressed mercilessly…
So where to now from here for Abovenet? I continue to see M&A in their future, but given the strength of their stock price and their operational performance perhaps it will be as the acquirer rather than as acquiree. Certainly at their current valuation none of the more likely acquirers would be able to make a reasonable bid any time soon, so why not turn it around? They might have shown up in the bidding for ftgx, but having just sold their datacenter business they perhaps didn’t want to get back into it with those Meet-me facilities etc. But there are other assets out there looking for a home, new markets to enter, etc.
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Categories: Financials · Metro fiber
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It is good to see Abovenet doing well. However, I must take issue with “higher as anyone has any right to expect in this sector”. Our sector is capital intensive. Companies of Abovenet’s profile–including Zayo Bandwidth–need to deliver high EBITDA percentages. Investors have a right to expect this.
Hmmm, just how high is high enough then? Where ought we see EBITDA margins go to?
I’ve seen well-run bandwidth infrastructure companies in the vicinity of the 50’s. Higher isn’t always better…but I don’t think 30’s is good enough for a capital intensive business…abovenet’s is very respectable.
What AboveNet demonstrates is that there is value, high value and growth in owning metro assets … period. As Bill LaPerch, CEO of AboveNet said on the call, the more unique those metro assets are, the better margins you can receive — as AboveNet is demonstrating.
Analysts have not figured out or refuse to accept, that being vertically integrated and/or renting pieces and parts from Ma Bell are characteristically different than an AboveNet and only a handful of similarly situated companies that own tangible infrastructure (not IRU’s)..
AboveNet is demonstrating a business model and an outcome that works, is reliable, predictable and has lots of runway to grow. The high fixed costs of network infrastructure is a serious barrier of entry to others as underlying, organic bandwidth continues to grow globally and outstrips the physics of copper land line platforms.
It would cost billions to reproduce what AboveNet owns – there is value in that as a protector of growth and competitive advantage. Yet, Wall Street analysts rarely apply a value for having such an advantage at hand that most others do not — the one size fits all syndrome analysis.
Eventually, the analysts will figure out the there are different types of communications providers — those with sustainability and those looking for the next arbitrage play.
AboveNet is leading the pace to show it’s about margin growth, profitable customers and a built-in barrier of entry to exploit.
Dan and Dave are both correct.
We are all in a strong part of the market in providing differentiated service offerings over unique infrastructure that we’ve invested in and control, with the in-house capability to continue to extned that footprint. You’ll see Fibertech, Zayo, AFS, Fiberlight and some others continue to grow because there continues to be a growing need for alternative infrastructure where businesses need cost-effective connectivity and scalability. With that comes the responsibility to deliver solid returns to our investors who have made large investments and stood by all of us while we built our businesses over the past decade. Abovenet’s performance will continue to improve and there’s no reason that margins should subside anytime soon. As the public company beacon in the metro bandwidth sector, the rest of us will keep on cheering their reemergence and success.
Mike,
Well said. Fibertech is leading by example. Keep it up.
Dan