Shares of Bandwidth (BAND +2.54%) have performed terribly in the stock market despite the cloud communications company growing at a terrific pace in the past few years.
As it turns out, Bandwidth stock has lost 81% of its value in the past year. This may seem a tad surprising, as the company finished 2021 with a 43% increase in revenue to $491 million, while adjusted earnings jumped to $0.97 per share from $0.55 per share the year before. However, Bandwidth's tepid guidance for 2022 sent the stock crashing, with shares cratering over 30% in a single day in February this year.
Bandwidth is showing signs of regaining its mojo
The fallout from a cyberattack on Bandwidth last year is still impacting the company's business. It anticipates a revenue hit of $16 million to $24 million this year due to the attack that happened in September 2021, which resulted in a loss in transaction volumes and led Bandwidth to issue customer credits.
At the same time, Bandwidth is facing tough year-over-year comparisons after growing at a blistering pace in the past couple of years. The company has also divested three small business units, with two of those divestments taking place last quarter. As a result, Bandwidth expects to finish 2022 with $554 million in revenue and $0.12 per share in earnings. This points toward a 13% year-over-year increase in Bandwidth's revenue this year, while the bottom line is expected to shrink massively.
However, Bandwidth was expecting even worse when it released its original 2022 guidance in February. The company had guided for $0.06 per share in adjusted earnings on $551 million in revenue, but stronger-than-expected first-quarter results have encouraged management to boost the guidance.
NASDAQ: BAND
Key Data Points
Bandwidth released its first-quarter report on May 4, posting a 16% year-over-year jump in revenue to $131 million. This exceeded the company's guidance of $126 million. Bandwidth posted non-GAAP net income of $0.09 per share as compared to an estimated loss of $0.11 to $0.07 per share. More importantly, the size of the market that Bandwidth serves should help give its growth a nice boost in the long run.
Investors shouldn't miss the forest for the trees
Bandwidth's better-than-expected results were driven by an increase in demand for its offerings, which allow its clients to embed voice calling, text messaging, and emergency services access within their applications. For instance, a top investment bank has chosen Bandwidth's solutions to build its contact center, while a healthcare company and a cruise operator also opted to use its services.
It won't be surprising to see Bandwidth's customer growth momentum continue in the future; demand for cloud-based contact centers is expected to increase at nearly 22% a year through 2026. The company forecasts that its total addressable market could hit $83 billion in 2025 versus $46 billion in 2020.
Image source: Getty Images.
It is also worth noting that Bandwidth's customers are increasing their spending on the company's services or are adopting more of its offerings through cross-selling. This is evident from a dollar-based net retention rate of 114% last quarter. This metric compares the revenue generated by its active customers last quarter to the revenue generated by those same customers in the prior-year period. A reading of more than 100% means that customers increased their spending on Bandwidth's services. The number of active customers increased 12% year over year last quarter to 3,372.
Strong end-market expansion, an increase in the customer base, and higher client spending show us why analysts expect Bandwidth's revenue and earnings growth to accelerate in the future.
|
Metric |
2022 |
2023 |
2024 |
|---|---|---|---|
|
Revenue estimate (in millions) |
$554 |
$646 |
$748 |
|
Earnings estimate (per share) |
$0.12 |
$0.66 |
$1.25 |
Data source: YCharts.
And, with shares of Bandwidth trading at just 1.14 times sales following their sharp decline in the past year, investors have a golden opportunity to buy this cloud stock on the cheap right now.
