Steady As She Goes for Cogent’s Q3

November 3rd, 2011 by · 2 Comments

Cogent Communications (NASDAQ:CCOI, news, filings), which operates both a top IP transit backbone and a substantial on-net metro footprint, checked in with its third quarter results this morning too.  The company reported revenues just under analyst expectations but up steadily sequentially, and EBITDA margins expanded nicely once again.  The company also maintained its foot in the positive earnings door with earnings per share of $0.01.  As usual, here's a quick table of the more relevant numbers in the context of the past four quarters:

$ in millions Q3/10 Q4/10 Q1/11 Q2/11 Q3/11
Revenue $66.8 $69.5 $73.5 $75.6 $77.4
EBITDA $20.3 $22.6 $24.2 $25.4 $26.7
Earnings per share -0.01 +0.06 -0.01 0.05 0.01
Gross Margin 54.3% 55.5% 56.9% 56.2% 56.7%
Adj. EBITDA Margin 30.4% 32.5% 33.0% 33.6% 34.5%
On-net Buildings 1539 1579 1609 1669 1707

Cogent reported 10% traffic growth on its backbone sequentially, and 44% over the same quarter last year.  Those are steady numbers, but not big ones.  However it has been interesting to watch lately as Cogent's improving numbers have had little to do with its historically aggressive traffic land grabs and far more to do with simply scaling the business at high incremental margins.  EBITDA margins have been rising steadily for a long time now, and they are knocking in the door of 35% -- something I wouldn't have believed if you'd told me a couple of years ago.

Cogent added 38 buildings to its network in the third quarter.  That's slower than in the prior quarter, which was uncharacteristically brisk.  This quarter's rate is much closer to their rate in the quarters prior.  The company has continued to be very quiet this year.  But I wonder now with their improving results they might not become an M&A target.  Hmmm.

 

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Categories: Financials · Internet Backbones · Metro fiber

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2 Comments So Far


  • Eric says:

    Cogent is an interesting puzzle. Normally, it would be a negative indicator if you were growing but your competitors were growing faster. However, Cogent is making solid gains, growing ever more profitable, and has been, from my experience, a pretty solid ISP for the past several years with good customer retention. Cogent’s problem is that it hasn’t expanded into new areas the way other carriers have done: they provide IP exclusively. They also offer significantly cheaper bandwidth than many of their competitors and still somehow have great margins.

    As a company, Cogent appears to be the epitome of financial caution–they won’t make a single investment that hasn’t been carefully considered. But my thought is that they should expand their On-net buildings more rapidly. As far as I can tell, that is the area where they are strongest.

  • CarlK says:

    Jim Crowe tells his owners that, they must calculate the sq. footage of buildings serving valuable enterprise customers, as opposed to # of buildings. Makes perfect sense, unlike his stock price.

    Rob, have you gotten to that METRIC yet?

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