Continuing its surge out of obscurity, abvt reported an excellent Q3. Revenues of $92.4M were up a full 5% over the prior quarter’s $88.0M, and were substantially above the market’s expectations of about $88.8M as collected by Yahoo Finance. Adjusted EBITDA of $40.7M and adjusted EBITDA margin of 44.0% were similarly powerful. Earlier in the year, when the company reached 44% ebitda margins, it seemed as if they couldn’t possibly keep it up. But now it looks more and more sustainable. With growth and scale could they start to edge toward 50%?
Guidance had already been raised in Q2, and now they raised it again in Q3 – something we have seen rarely in the sector except from the datacenter space. Full year revenue projections are now $355-360M and that EBITDA margin for the full year should remain in the 44% range. That translates to Q4 revenues of $89.5-94.2M and EBITDA of $39.5-41.5M, which still appear to be quite conservative.
Abovenet now sits on a cash stockpile of $110M with little debt and a profitable business that shrugged off the recession. They have been proving that they know how to make money off of metro fiber assets, but their success poses the question of what next? They would seem to be in a good position for M&A of other metro fiber assets of course, but even in terms of organic growth there are many new markets out there they might start up in. As with Equinix (NASDAQ:EQIX, news, filings) in the datacenter sector and their fiber brethren TW Telecom (NASDAQ:TWTC, news, filings), Abovenet has emerged into an era where their business generates quite a bit more cash than its existing markets are consuming even at a healthy growth rate.
In the competitive telecom landscape, that isn’t as common as it ought to be. So what to do with it? Not a dividend I hope!
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Categories: Financials · Metro fiber
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A dividend would be just fine by me.
The question is, can they edge-out to adjacent market niches, especially those that are heavily tied into or dependent on their fiber builds, and not lose focus on their core mission, which they’re now doing quite well. E.g., managed services, engineering outsourcing, etc. Awhile back I’d have said no, not yet. Today, I’m still not altogether sure, but more likely yes.
frank@fttx.org
Get use to it … this model works … huge demand for data/ip … adding applications just complicates your business and drives costs up … this stock is a buy in my opinion …
Analysts need to separate AboveNet from the herd … it’s unique and valuable.
Go LaPerch!!!!
Look at Equinix – the company sells for 2x Abovenet on a multiple basis but has a higher capital intensity business with more depreciation. Similar companies – they are both capital asset operators – but hard to see how one is supposed to grow 2x the speed of the other.
Investors like Equinix better because a) it is a simpler business model to understand, and b) the company has a longer track record. Can’t do much about the first, but time will take care of the second if Abovenet can keep it up.
Expect AboveNet, in my opinion, to show this type of growth for the next three years at least without changing a thing … even higher if they expand horizontally, not vertically.
Huge demand for reliable optical, big bandwidth, data/ip networks that application entrepreneurs need to ride over.