Cloud-based communications platform-as-a-service (CPaaS) provider Bandwidth Inc. (BAND) boasts customers that include Microsoft Corporation (MSFT), Zoom Video Communications, Inc. (ZM), and Cisco Systems, Inc. (CSCO). Its customers use its application programming interfaces (APIs) to embed voice, messaging, and emergency services into their software and applications. The company also created buzz from its acquisition of Voxbone last November.
However, BAND’s stock has lost more than 19% year-to-date and is currently trading 37.4% below its 52-week high of $198.60.The stock’s downtrend was accelerated after the company reported a net loss for its fourth quarter (ended December 31, 2020).
In the communications space, BAND faces stiff competition from the likes of Twilio Inc. (TWLO) and Vonage Holdings Corp. (VG) that have returned 21.4% and 21.8%, respectively, over the past six months versus BAND’s 32.7% loss.
So, here’s what we think could shape BAND’s performance in the near term:
BAND witnessed higher demand for its cloud-ready voice and messaging services ahead of the U.S. presidential elections due to high volumes of political messaging. However, the demand quickly declined following the elections.
Also, the sudden rise in the work-from-home trend amid the coronavirus pandemic led to increased demand for the company’s services. However, with the U.S. economy expected to reopen sooner than expected, fueled by the mass vaccinations and a $1.9 trillion government recovery package, its reasonable that demand for BAND’s services will decline. .
BAND’s revenue increased 82.3% year-over-year to $113.05 million in the fourth quarter ended December 31, 2020. This was driven primarily by its 84% year-over-year growth in CPaaS revenue. However, BAND’s non-GAAP gross margin came in at 49% for the quarter, slightly lower than its 2019 fourth quarter value. Furthermore, the company’s operating loss and net loss came in at $12.22 million and $19.93 million, respectively, for the quarter. Its free cash flow also came in at negative $10.02 million.
On March 12, the company priced $250 million of 0.50% convertible senior notes, due 2028.
Unfavorable Analyst Estimates
Analysts expect BAND’s revenue to increase a meager 18.1% in fiscal 2022. Its consensus EPS estimate of $0.01 for the quarter ended March 31, 2021 represents a 75% year-over-year decline. Its EPS is expected to decline 100% for the quarter ending June 30, 2021 and 81.8% in fiscal 2021.
POWR Ratings Reflect Bleak Outlook
BAND has an overall rating of D, which equates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with the weighting of each optimized to improve overall performance.
Our proprietary rating system also evaluates each stock based on eight different categories. Among these categories, BAND has an F grade for Quality. This is consistent with its trailing-12-month gross profit margin of 46.1%, which is lower than the industry average 51%, and trailing-12-month levered free cash flow margin of 8.5%, which is also lower than the industry average 11.2%. The stock also has a D grade for Stability.
Better than BAND: Click here to access 19 top-rated stocks in the same industry.
BAND managed to grow its revenue amid the pandemic owing to the work-from-home trend and with that greater demand for its services. However, with President Biden expected to move up the country’s vaccination deadline, the economy is expected to reopen more quickly than anticipated . So, we think this may not be good news for the company and, as such, it is wise to avoid the name now.
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BAND shares were trading at $123.91 per share on Wednesday morning, down $0.38 (-0.31%). Year-to-date, BAND has declined -19.37%, versus a 9.03% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...
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