Bandwidth Skyrockets More Than 41% On A Solid Earnings Beat And Full Year Outlook Upgrade

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Discusses the result in more depth with market commentary and Fintel platform analysis

Shares of cloud-based communications platform provider Bandwidth Inc (NASDAQ:BAND) skyrocketed more than 41% on Thursday after the company reported third quarter results that were much better than expected.

The stock traded as high as $18.90 and peaked at an intra-day gain of 54% over the day.

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Bandwidth's Q3 Earnings

For the third quarter, Bandwidth grew sales by 13% to $148.3 million when compared to the prior year and beat analyst forecasts by ~5.5%.

The company grew active customers by 5% over the year to 3,380 with a dollar-based net retention rate of 109%.

Non-GAAP net income grew by 32% over the year to $8.6 million from $6.5 million in the prior year. On a normal basis with all financial figures included, BAND reduced the reported net income loss substantially over the year from -$6.9 million to -$0.8 million.

These results fingered through to an underlying earnings per share result of 27 cents for investors, rising from 25 cents in the prior year. This figure was substantially ahead of the streets’ forecast for a mere 3 cents per share.

The key take out of the result was the growth in underlying gross margins to 57% from 54% in the prior year. The margin expansion came as a surprise as the trend during reporting season has been for companies to experience contacting margins and profits as headwinds hit bottom line numbers.

Following the better than expected result, management provided fourth quarter guidance and upgraded full year guidance. Management now expects to generate underlying EPS between 35 to 37 cents per share, compared to guidance of 10 to 14 cents previously. The upgrade represents a 300% upgrade between both forecast mid-points.

Additionally, management now believes they can generate $562-564 million in sales instead of the $551-557 guided earlier to investors.

In addition to the result, management announced that they will be repurchasing $160 million of principal notes with a balance of around $240 million in notes outstanding after the purchase.

Analyst T. Michael Walkley from Canaccord Genuity noted that despite the tempered expectations for 2022 growth, he believes the business has several long-term growth drivers that include increasing international traffic, growing the messaging business and by further improving gross margins with a large new cohort of customers.

Canaccord remains ‘buy’ rated on the stock but Walkley lowered his target to $34 from $50 due to multiple compression.

Elsewhere at Piper Sandler, analyst James Fish believes the guidance from management looks like it could be conservative given the near-term catalysts and reducing headwinds. Fish remains ‘overweight’ rated given the stock's valuation but reduced his target price from $28 to $18 as they changed the valuation methodology for the stock.

On average BAND has a consensus ‘overweight’ rating and an average $36 target price.

Despite the strong earnings report and outlook, BAND’s share price is still trading well below pandemic highs that saw the stock rally more than 1000% higher with the stock almost reaching $200 per share.

Fintel’s platform analysis suggests that BAND has the potential for a gamma squeeze. Fintel attributes a gamma squeeze score of 96.88 for the stock and ranks the company as the 5th highest candidate when screened against 245 other stocks on the Gamma Squeeze Leaderboard.

This is due to several factors including 11.6% of the stock's float currently being shorted with a put/call ratio declining -44% over the week, suggesting the stock has experienced a substantial increase in call option demand.

This could result in a possible squeeze due to activity in the options market for the stock.

Net call option interest currently represents ~6% of the total float.

Article by Ben Ward, Fintel