Megaport’s Heavy Investment Raises Questions on Future Profitability
Megaport Limited delivered a robust FY25 with 20% growth in annual recurring revenue and EBITDA surpassing guidance, setting the stage for continued expansion in FY26.
- Annual Recurring Revenue (ARR) up 20% to $243.8 million
- EBITDA of $62.3 million exceeds guidance
- 115 new data centers added, doubling year-on-year growth
- FY26 revenue guidance between $260 million and $270 million
- Strong cash position with $102.1 million at bank
Strong Growth Momentum in FY25
Megaport Limited has reported a compelling set of financial results for the fiscal year ending June 2025, highlighted by a 20% increase in Annual Recurring Revenue (ARR) to $243.8 million. This growth was underpinned by an 18% rise in large customers contributing more than $100,000 each, and a net revenue retention rate stabilising at 107%, signaling strong customer loyalty and expansion within its existing base.
The company’s EBITDA reached $62.3 million, slightly above the guided range, reflecting operational efficiency despite increased investments in go-to-market (GTM) initiatives and product innovation. Capital expenditure also rose to $34.6 million, supporting the rollout of 115 new data centers; a 105% increase year-on-year; and significant network upgrades including a 400G backbone extension across key metros in the USA and Europe.
Strategic Investments Fueling Expansion
Megaport’s FY25 performance reflects deliberate acceleration in strategic pillars, expanding its global footprint, innovating product offerings, and investing heavily in sales, marketing, and engineering teams. The company introduced new compute platforms, enhanced security products, and expanded cloud on-ramps to 333 locations, while also growing its engineering headcount by 37%, leveraging AI-assisted coding to boost productivity.
These investments have not only driven new customer acquisitions; 104 net new logos in H1 FY25 and a strong pipeline in H2; but also increased the average ARR per data center, indicating higher revenue quality from new sites. The Americas region remains the largest contributor, accounting for 57% of total ARR, with ongoing expansion in APAC, EMEA, and new markets such as Brazil and Italy.
Outlook and Guidance for FY26
Looking ahead, Megaport projects FY26 revenue between $260 million and $270 million, representing 15% to 19% growth year-on-year. EBITDA margins are expected to remain healthy at 18% to 20% of revenue, despite continued investments in GTM headcount and network expansion, which will account for approximately 10% of revenue. Capital expenditure guidance is set at 18% to 20% of revenue, reflecting ongoing commitments to product innovation and infrastructure upgrades.
Megaport’s strong cash position, with $102.1 million in cash at bank and net cash of $87.8 million, provides a solid foundation to sustain its growth trajectory. The company’s strategic focus on expanding its total addressable market through aggressive go-to-market execution and continuous product development positions it well to capture emerging opportunities in cloud networking and software-defined connectivity.
Balancing Growth and Profitability
While Megaport is in a reinvestment phase, the company has managed to maintain a stable gross margin of around 70%, reinvesting revenue directly into network expansion. Employee costs rose 29% year-on-year, driven by targeted hiring in sales, marketing, and engineering to support growth initiatives. Other operating expenses increased in line with scaling activities, including travel, IT, and marketing events.
This disciplined approach to balancing growth with profitability underscores Megaport’s ambition to accelerate revenue growth while preparing for a sustainable profit profile beyond FY27. The company’s leadership, including CEO Michael Reid; who joined from Cisco’s ThousandEyes; has emphasized innovation and customer success as key drivers of future expansion.
Bottom Line?
Megaport’s FY25 results set a strong foundation, but the market will watch closely how investments translate into sustained growth and profitability in FY26 and beyond.
Questions in the middle?
- How will Megaport’s increased capital expenditure impact free cash flow in FY26?
- What are the risks associated with the 18-24 month lag between investment and revenue recognition?
- How will competitive pressures in cloud networking affect Megaport’s customer acquisition and retention?