Megaport’s Strong ARR Growth Offset by Cost Concerns and Execution Risks, Hold Rating Maintained

Analyst Chris Boulus from Morgan Stanley maintained a Hold rating on Megaport and decreased the price target to A$11.00 from A$11.10.

Chris Boulus has given his Hold rating due to a combination of factors influencing Megaport’s financial outlook. The company demonstrated strong performance in terms of Annual Recurring Revenue (ARR), surpassing expectations with a 20% year-over-year growth in FY25. This growth was driven by an increase in large customer acquisitions and product innovation. However, despite the positive ARR results, there are concerns regarding the company’s cost structure and its impact on future profitability.
While Megaport’s strategic direction remains promising, the anticipated increase in go-to-market and network costs has led to a downward revision of the FY26 EBITDA margin guidance from 27% to 19%. This raises questions about the timing and visibility of returns on investment, creating execution risks. Consequently, Chris Boulus maintains a Hold rating, suggesting that while the company shows potential, there are preferable investment opportunities with more favorable growth prospects and less demanding EBITDA multiples, such as WTC and XRO.

In another report released today, UBS also maintained a Hold rating on the stock with a A$12.00 price target.