IP Transit Market Holds Back Cogent

May 9th, 2009 by · 4 Comments

Upstart network provider Cogent Communications (NASDAQ:CCOI, news, filings) reported earnings yesterday, reporting revenues of $55.1M – up $54.9M sequentially.  That was below analyst expectations overall, but in this environment it could easily have been worse.  In fact, if it were just the IP Transit business, revenues would have declined between 2 and 3% even as traffic went up 21% in the same period.  What happened?  Well, the IP transit market is rough right now all by itself – customers have been delaying purchases and using more of the capacity they have already bought. Cogent has responded with promotional deals which have brought in more traffic, but precious little revenue.  They say that comes later in the year.

What saved Cogent’s growth trend in Q1 is of course their metro fiber based  business with which they serve corporate customers, which saw much greater stability overall and generated over 3% revenue growth.   No mystery why of course, it’s just a more resilient business to be in right now.  The company maintained revenue guidance of over $250M, which implies a big ramp in the 2nd half of the year.  For example, a progression of $55, $60, $65, $70 would get you there – but promotional effects or not that looks like a steep hill to climb without one heck of an economic rebound.

EBITDA of $13.9M and earnings per share of -$0.19 were lower than expected, which is understandable given the revenue performance, costs had to go up to support 21% traffic growth and there was little to balance that.  Guidance of $75-80M again will require a hefty ramp in the second half of the year, for example $13.9, $17, $21, $25 would get you there.  I wish them luck, but given that making guidance is probably the very best one can hope for it is not surprising at all that the market isn’t too happy with the stock right now.

Cogent of course expanded fearlessly again.  In addition to 29 new on-net buildings, they are now apparently entering Mexico and intend to go all the way to Mexico City.  That’s not a route that many US carriers concentrate on, it will be interesting to see where it takes them.   Expansion may seem crazy to some in a recession like this, but you have to realize that Cogent spent many years on the edge of the cliff after the last bubble burst with little cash and heavy cash burn.  Compared with those years, this environment where they actually have money to both expand and to buy back stock must seem like kids play.  So far anyway.

Categories: Financials · Internet Backbones · Internet Traffic · Metro fiber

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4 Comments So Far


  • Ben Hilborn says:

    Cogent is getting some nice momentum in Tulsa. Tulsa POP was brought on line in Aug 08. Steady stream of new customers coming on line. Taking marketshare for 100mb + circuits from Qwest, Global Crossing, Verizon, Sprint, AT&T and others.

  • Profile photo of Rob Powell Rob Powell says:

    That’s interesting, Ben. I note that Cogent’s website lists only one on-net building on Tulsa (322 E Archer Street). Is that out of date or are they going off-net to do it? Their off-net revenues have been growing rapidly lately.

  • DDM08 says:

    I don’t trust any company where management can’t seem to communicate and openly share their presentations with shareholders like other telco companies. How can any of their numbers are to be trusted?

  • The_highwayman says:

    Rob,
    Other than the Perimeter TPC at 322 E. Archer Street, we do not see much of Cogent

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