Megaport AGM Reflection: Addressing Net Revenue Retention (NRR) Challenges
Path to NRR recovery
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On November 22nd, Megaport held its Annual General Meeting (AGM). In my last analysis on August 26th, I reflected on their FY24 results and FY25 guidance, posing a main question in my mind:
“If you can answer this one crucial question, you’ll be able to accurately assess Megaport’s value: Can Megaport successfully reverse the decline in Net Revenue Retention (NRR)?”
At the AGM, Megaport reaffirmed their FY25 guidance, a positive sign indicating no need for a downgrade. However, the market appeared disappointed, likely anticipating a more optimistic surprise. As of this writing, Megaport’s stock is down approximately 10%, reflecting this sentiment.
Interestingly, beyond the FY25 guidance, management added an important note:
“Early trends are indicative of a continuation of this revenue growth trajectory in FY26.”
This suggests that the NRR reversal may take longer than anticipated while growth is steady. Based on the company’s midpoint guidance, FY26 revenue growth is expected to be in the range of 13–15%, in line with FY25 trends (at this point)
What Drives NRR at Megaport?
Several factors influence NRR performance:
Market Conditions
Broader market conditions impact all industry players. While there isn’t a perfect comparable company for Megaport, trends at peers like Equinix (connectivity segment) and Cloudflare show similar NRR declines. This indicates that external market factors are playing a role.This is something they don’t have control over. so hope for the best and prepare for the worst is the strategy.
Launch of New Products
Expanding existing customer spend often requires new products for upselling or cross-selling. Between 2020 and 2023, Megaport struggled with innovation. However, the last year has seen multiple new product launches, which should potentially drive improvements in NRR.Pricing Adjustments
Incorrect pricing can hinder upselling and cross-selling. This was a significant issue for Megaport, but management claims it has been addressed. Still, it will take time for these adjustments to reflect in NRR metrics.Customer Success Management
Customer Success Managers (CSMs) are crucial for driving NRR by fostering deeper engagement with existing clients. In 2023, Megaport had just one CSM. Today, North America alone has 12, signaling a major shift in focus.New Customer Wins
New customers typically expand usage faster than existing ones as they explore and integrate into Megaport’s ecosystem. Last year, net new customer growth was weak. To address this, Megaport revamped its go-to-market (GTM) strategy, incentivizing the sales team to prioritize new customer acquisitions.
Assessing Megaport’s Progress
Out of the five levers that influence NRR, Megaport controls four: new products, pricing, CSMs, and customer acquisition. Encouragingly, management has implemented the right strategies in these areas. The fifth lever—market conditions—remains outside their control and will likely improve with time.
That said, there is still no concrete evidence that the NRR decline has been reversed. My original question remains unanswered:
“Can Megaport reverse the decline in NRR?”
The updated answer: It may, but it could take longer than hoped.
Is Management on the Right Track?
Yes, their strategy seems sound. Now, the challenge lies in execution. Only time will tell if Megaport can overcome its NRR headwinds and deliver on its growth potential. For now, I should monitor progress closely while remaining patient.