Pentanet reports 8% revenue growth, $6.9 million net loss with $4 million impairment

Strong Cloud Gaming Growth Drives Profitability Lift

Pentanet Ltd (ASX:5GG) has delivered a solid FY26 performance with group revenue climbing 8% to $24.4 million, buoyed by a 16% increase in its higher-margin cloud gaming segment. The gaming business, operating under the CloudGG brand and powered by Pentanet’s status as an NVIDIA GeForce NOW Alliance Partner, contributed $2.8 million in revenue and expanded its gross margin to 68%, up 11 percentage points year-on-year. This translated into a 61% jump in gaming segment EBITDA to $1.7 million, now accounting for 46% of the group’s EBITDA before corporate costs.

Gaming’s improved unit economics were underpinned by a strategic shift away from the entry-level Casual plan towards premium subscription tiers, with the Ultimate tier membership rising from 39% to 59% of the paid base. Average revenue per user (ARPU) surged 36% to $24, reflecting customers’ willingness to pay for enhanced cloud gaming experiences without the upfront cost of expensive hardware upgrades.

Telecommunications Segment Maintains Steady Momentum

The telecommunications arm maintained steady growth, with revenue up 7% to $21.6 million and subscriber numbers increasing 4% to 18,936. Off-net subscribers grew 13%, helped by the NBN Speed Boost program, while on-net 5G subscribers rose 15% to 1,039. Despite a slight dip in gross margin from 48% to 46% due to a higher proportion of lower-margin off-net services, telco EBITDA increased 5% to $2.0 million. Blended ARPU nudged up 2% to $96 per month, supported by customers migrating to higher-speed plans.

Impairment on Obsolete Servers Weighs on Net Loss

Despite the EBITDA improvement, Pentanet reported a net loss after tax of $6.9 million, a 55% increase from the prior year. This was largely driven by a non-cash, one-off impairment charge of $4.0 million related to the decommissioning of GeForce NOW Gen 2 RTX servers following NVIDIA’s end-of-service notification. All subscribers and workloads have since migrated successfully to the Gen 3 platform, which underpins Pentanet’s cloud gaming services going forward.

Excluding the impairment, the underlying net loss narrowed to $3.0 million, reflecting operational progress and disciplined cost control. The company ended FY26 with $1.5 million in cash and reported a 17% increase in net operating cash inflow to $1.6 million.

Infrastructure Utilisation and Strategic Focus for FY27

With the major network and GPU infrastructure build phase behind it, Pentanet is shifting its focus to maximising utilisation of existing assets. The company aims to convert its large registered gaming audience, approximately 840,000 accounts, into paying subscribers, and to incrementally expand GPU capacity in line with demand through its NVIDIA alliance. In telecommunications, the emphasis remains on disciplined organic subscriber growth, brand-led acquisition via the "Nothing But Net" campaign, and capital efficiency by leveraging the existing network footprint.

Managing Director Stephen Cornish highlighted the scarcity and rising cost of high-end gaming GPUs as a structural tailwind for Pentanet’s cloud gaming proposition, which offers an affordable subscription alternative to costly hardware upgrades. He noted that FY26 was about laying a solid foundation before entering the next growth phase, with FY27 expected to deliver improved operating leverage and profitability.

Corporate costs remained stable at $1.3 million, and operating expenses decreased 3% year-on-year, reflecting ongoing financial discipline. The company also completed the final payment on its 15-year 26 GHz spectrum license, reducing capital expenditure commitments going forward.

Governance and Risk Management Remain Priorities

Pentanet’s 2026 Annual Report, audited with an unmodified opinion by BDO Audit Pty Ltd, underscores the company’s commitment to robust governance and risk management. Key risks include competitive pressures in telecommunications, reliance on NVIDIA for cloud gaming technology, and capital access constraints. The board continues to oversee these areas closely, ensuring alignment with strategic objectives.

Notably, no dividends were declared for FY26, consistent with Pentanet’s focus on reinvesting in growth and infrastructure utilisation.