euNetworks (SIN:H23, news) reported its earnings for the fourth quarter and full year 2012, demonstrating a continued solid growth trend and strongly improving margins. The independent metro fiber operator added another 59 buildings to its network and another 33 customers to its rolls. Improved scale and product mix helped adjusted EBITDA margins surge above 20% for the first time, with gross margins breaching the 70% barrier as well. Here are their numbers in some context:
|in millions of €||Q4/11||Q1/12||Q2/12||Q3/12||Q4/12|
|Adj EBITDA margin||0.4%||9.1%||10.8%||13.7%||20.8%|
One key takeaway from euNetworks fourth quarter, however, is the news that low latency competition from microwave will probably be causing some headaches for fiber operators between London and Frankfort. Churn was higher in Q4 largely due to older SDH stuff from LambdaNet, but competition from microwave in the low latency segment is expected to keep churn at such rates for a while yet. While microwave has reliability and capacity limitations, the fact that light is faster in air than in fiber means it will be faster - just has has been proven on the NYC-Chicago route over the past couple of years. That will inevitably affect how traders buy their bandwidth, although low latency fiber is still a big piece of that puzzle.
To compensate, euNetworks is looking to other enterprise verticals that are beginning to buy more and more bandwidth. Just this week they announced new inroads into the media industry via a new multi-year contract with Hogarth Worldwide, a global marketing implementation agency that is part of WPP Group. Last quarter, euNetworks delivered a dark fiber ring connecting up all of the agency's major locations, and the new network is now live.
As an independent European fiber operator has long awaited the arrival of a real appetite for big bandwidth among European enterprises, and the media sector seems to be coming along well in that regard. Hopefully other European enterprise segments are on similar tracks, but of course it hasn't helped that the macroeconomic headwinds have been so strong for the past few years. The Hogarth deal is an example of the kind of opportunity that euNetworks will increasingly be targeting.
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