Upstart internet backbone provider Cogent Communications (NASDAQ:CCOI, news, filings) reported earnings on Friday, and managed a pretty good quarter. Revenues of $58.0M were up $2.9M sequentially, or 5.3% – better than both its own projections and the street’s estimates. There was a positive foreign exchange impact of $0.7M, but overall it was an impressive number given the stagnation Cogent saw for the previous several quarters. On-net revenues were up 4.9%, while off-net and non-core revenues were up 7.0% and 6.6%, pretty much across the board.
Along with encouraging revenue growth came a better adjusted EBITDA number of $16.7M and loss per share of $0.10, down from $0.17 last quarter and quite a bit better than estimates. Cogent added 34 on-net buildings during the quarter, reaching 1389 as of June 30. Traffic grew 10% sequentially, less than the 21% last quarter. It isn’t a huge number but growth is growth these days, and the company’s traffic growth has been erratic for the past two years, so it’s hard to read much into that.
The company decided, however, that they aren’t going to be providing guidance going forward. The reason given is that they spend so much time explaining them, that it distracts them from their business. I can’t say I blame them, providing guidance these days is like painting a bullseye on your back. Still, it also suggests that visibility may not be great, and we will have to watch how Q3 and Q4 go. However, Cogent is not really like other companies, as the self-proclaimed price leader, they can often be the beneficiary of cost-cutting by companies who must match capacity to traffic growth on worsening budgets. The pricing action of last June may have caused some chaos in their numbers, but it may also have positioned them very well for the current environment.
One anomaly was the number of non-core customers, which jumped from 564 in the first quarter to 1149. For Cogent, non-core revenue comes from products they acquired but don’t actively sell, which are primarily dialup plus some voice (in Toronto only). There must be a new definition for “don’t actively sell” that I don’t know about, one which includes an exception such as “when in a recession, reverse policy”. Not that I blame them, creativity is a necessary thing these days.
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