Cogent Spreads Some Cheer

August 10th, 2009 by · 3 Comments

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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Categories: Financials · Internet Backbones · Internet Traffic

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3 Comments So Far

  • Crossy says:

    re: CCOI
    first of all I did like the quarterly very much. I also took the time to listen to the CC and they explain in detail why noncore revnue also jumped.

    If one follows the history and genesis of Cogent as a carrier, they started off a pretty opportunistic business model, spending less than $200m for a network that costs others $1-2bn to build – mostly out of asset transactions with bankrupt companies.

    According to the CC, this quarter, they took the opportunity to acquire 2 data centers – for next to nothing – the only requirement being to continue service to existing customers of the centers. They see it as a way to sell up more bandwidth in the future. Some of the datacenters’ customers however were on service plans that Cogent classified as legacy, hence the increase in such revenue.

    best to you and congratulations on your site !

    • Rob Powell says:

      Ah, thank you for the clarification Crossy! I’ve been away for a few days and am still catching up. So non-core is now dialup, toronto voice, and some datacenter stuff.

      • Crossy says:

        the call was unusually long – it lasted more than a full hour – never saw this kind of analyast interest in the company for years now. Their CEO surely knows how to buy assets on the cheap ! Maybe he didn’t want to update guidance NOW because a major step ahead is on the corner ?

        I mean if they would be acquiring further distressed assets, the time would certainly be now. It would also make more sense to provide a guidance update AFTER such a transaction was completed, not before.

        take care,

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