In Q2, Bandwidth grew revenue at a 13% y/y pace to $136.5 million, slightly beating Wall Street's expectations of $134.1 million (+11% y/y) by a two-point margin. The Q2 earnings summary is shown below:īandwidth Q2 results (Bandwidth Q2 earnings deck) Let's now go through Bandwidth's latest Q2 results in greater detail. At just over 1x forward revenue, Bandwidth is worth a small bet. The merit in Bandwidth is in the fact that it has a relatively sticky customer base built on top of reasonably high gross margins, which should be attractive assets to potential acquirers.
#Bandwidth stock drivers#
To me, I'm not invested in Bandwidth because I believe it is an exceptional-quality company or because it has superior growth drivers to take it to the next level. This puts Bandwidth's valuation at just 1.3x EV/FY22 revenue against the company's $551-$557 million revenue range for the current fiscal year (12-13% y/y growth, and unchanged from its prior guidance):īandwidth outlook (Bandwidth Q2 earnings deck) After we net off the $302.9 million of cash and $636.5 million of debt on Bandwidth's most recent balance sheet, the company's resulting enterprise value is $748 million. At current share prices near $16, Bandwidth trades at just a $414 million market cap. Valuation, of course, remains incredibly modest. To date, Bandwidth has stuck to its core voice-and-text capabilities, so adding additional features opens up even more growth for Bandwidth down the road. Opportunity for product category expansion- Twilio extended its growth potential by adding new products like call-center operations software.Zoom ( ZM) has its conferencing platform powered by Bandwidth Voice. Arlo ( ARLO), the security camera company, uses Bandwidth's 911 access company to connect its customers with local emergency departments. For example, Google ( GOOG) ( GOOGL) is a Bandwidth client, using Bandwidth voice to give its Internet calling capabilities to businesses and consumers. Use cases are varied and growing- The diversity of Bandwidth's client base is a testament to how broadly applicable its product is.The fact that all of its pricing is usage-based means that as its customers (Internet companies) grow their own usage and website/app visitors, Bandwidth's revenue will increase without the company having to lift a finger. CPaaS naturally lends itself to expansion- Bandwidth's dollar-based net expansion rates are healthy in the ~115% range.
#Bandwidth stock software#
Bandwidth's ability to corner this market is far better than an enterprise software company in a more tightly competitive arena. Bandwidth and Twilio are by far the most recognizable names in the space, followed by smaller startups like Nexmo. The CPaaS space isn't as competitive as other areas of enterprise software- You can name dozens of different CRM or HCM companies.It balances mid-teens revenue growth alongside a positive adjusted EBITDA margin (which continues to see expansion potential). Growth and profitability, not to mention value, in one neat package- Bandwidth is a haven for safety-oriented investors.Twilio, with its ~$4 billion of net cash on its balance sheet, could acquire Bandwidth in a heartbeat.Īnd though a lot of pessimism has descended on Bandwidth recently, it's good to highlight the bullish drivers that still exist for this name: While I agree that the business certainly comes with risk, especially with the customer attrition that we saw this quarter, I do think Bandwidth remains a ripe opportunity for consolidation in its industry - particularly as CPaaS providers rely on economies of scale to boost margins and profitability.
And though the market seems to have lost all hope for this name, I still think there is value to be squeezed out of this recurring-revenue business. Year to date, shares of Bandwidth have shed more than 75% of their value. A distant competitor to Twilio ( TWLO), Bandwidth has been in trouble over the past year as its growth rates lagged - especially as the company suffered an isolated DDoS attack that led to some customer attrition and loss of revenue.
I continue to err on the side of value-oriented tech, which I think will outperform as valuations stretch back and rebound closer to historical norms.īandwidth ( NASDAQ: BAND), in particular, is one name that deserves a close second look. As we look ahead to a potential year-end rebound, there are still plenty of tech stocks that are sitting deeply underwater year-to-date, despite the strong risk-on rally that we've seen over the past few months.
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