Bandwidth Inc.

BAND Details

A Look at 1QFY21 Key Results: Bandwidth Inc. (NASDAQ: BAND) is a provider of Communications Platform-as-a-Service (CPaaS) and offers software application programming interfaces for voice and messaging services. During the quarter, the company benefitted from a growing subscriber base and higher CPaaS revenues. Adjusted net income stood at 30 cents per share as compared with 4 cents per share reported in 1QFY20. Revenues during the quarter came in at $113.5 million, up ~66% from $62 million reported in the year-ago quarter, owing to higher CPaaS revenues. Further, the top-line was positively impacted by work-from-home trend caused by COVID-19 outbreak. Total operating expenses during the quarter came in at $52.2 million, up from ~$35 million reported in the year-ago quarter. Adjusted EBITDA stood at $13.4 million as compared to $3.1 million in 1QFY20. The company exited the period with a cash balance of $319.7million.

1QFY21 Key Results (Source: Company Reports)

Key Risks: Stiff competition from peers, adverse currency translations and a volatile macroeconomic environment pose threat to the company’s financial position. It is worth noting that a major portion of the company’s revenue is focused on a limited number of enterprise customers. Therefore, loss of one or more top ten customers may decrease orders for the company’s services and may dampen its financial stability.

Outlook: For FY21, revenues are expected to be in the ambit of $473.1-$476.1 million, whereas adjusted earnings are likely to be in the ambit of 47-55 cents. Moreover, the company expects CPaaS revenues for FY21 to be in the band of $417.6-$420.6 million. 

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: Over the last one month, the stock went down by ~16.6%. The stock made a 52-week low and high of $101.81 and $198.6, respectively. On the technical analysis front, the stock has a support level of ~$100.45 and a resistance level of ~$148.13. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price of an upside of low double-digit (in percentage terms). We believe that the company can trade at a slight premium as compared to its peer average on the back of a growing subscriber base, higher CPaaS revenues and decent outlook. For the purpose, we have taken peers like RingCentral Inc (NYSE: RNG), Verizon Communications Inc (NYSE: VZ), to name a few.  Considering the company’s track record of robust cash flow from operations, decent 1QFY21 performance, encouraging outlook, growing subscriber base and valuation, we give a “Buy” recommendation on the stock at the closing price of $112.58, down by ~1.34% on 17 May 2021.  

BAND Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Note: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Disclaimer

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