Bandwidth Inc.

BAND Details

Bandwidth Inc. (NASDAQ: BAND) is a cloud-based communications platform-as-a-service (CPaaS) provider that allows businesses to create, scale, and run voice or messaging communications services across any mobile app or connected device. It derives its revenue from monthly service fees for its software APIs, payments for services such as SIP trunking, data reselling, a hosted Voice-over-Internet Protocol service (VoIP), and traffic generated by other service carriers, SMS registration fees, and other associated product lines. As of November 16, 2021, the company's market capitalization stood at USD 1.97 billion.

Latest News:

• Promoting Telehealth Transformation: On November 16, 2021, BAND announced ongoing strong momentum in the healthcare sector, where the company is powering the telehealth digital communications transformation – from large corporations to app developers. It offers digital healthcare transformation and a better patient experience through a single, unified source for messaging, communications, and patient engagement.
• BAND's Statement on DDoS Attack: On October 05, 2021, BAND stated in response to a recent distributed denial of service (DDoS) attack directed at the company and other VoIP providers on September 28, 2021. A DDoS attack is a malicious attempt to disrupt the usual traffic of a targeted server. The company claimed that its mitigating efforts were practical. Despite frequent outages, its network has remained stable and operating at normal levels since the evening of September 29, 2021.

Q3FY21 Results:

• Surge in Topline: The company reported YoY growth of 54.13% in total revenue to USD 130.64 million in Q3FY21 (ended September 30, 2021) compared to USD 84.76 million in Q3FY20, attributable to a 45.57% increase in CPaaS revenue.
• Growth in Active CPaaS Customers: During Q3FY21, BAND's active CPaaS customers surged by 57.47% YoY to 3,173.
• Expansion of Net Losses: Net loss for Q3FY21 grew 1.95x YoY and stood at USD 6.94 million compared to USD 2.35 million in Q3FY20.
• Cash and Debt Position: As of September 30, 2021, the company had cash & cash equivalents of USD 321.82 million and total debt of USD 479.57 million.

Key Risks:

• Customer Concentration Risk: A significant portion of BAND's revenue comes from a small number of enterprise clients. Hence, the loss of any of its key customers could harm its financials.
• Dependence on Third-Party Suppliers: BAND relies on Fiber, transmission electronics, network components, and colocation facilities provided by third party suppliers. As a result, failure by these suppliers to deliver these crucial parts could significantly impact BAND's operations and financial position.

Outlook:

Q4FY21 and FY21 Guidance (Source: Q3FY21 Earnings Release, November 08, 2021)

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

BAND Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

BAND's share price has declined 57.96% in the past nine months and is currently leaning towards the lower-band of the 52-week range of USD 76.80 to USD 196.70. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 35.33. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 99.44.

Considering the significant correction in the stock price in the past nine months, strong top-line performance, growth in CPaaS customers, current valuation, and associated risks, we recommend a "Buy" rating on the stock at the closing price of USD 78.99, up 0.92% as of November 16, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached. 

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