BAND Q4 guidance +55%. Is it interesting?

Hi everyone,

this is my first post on this board that is helping a lot to increase my investing skills, as it’s my first as an investor. I tried to find an old thread talking on this company but I didn’t find anything (searching through those forums is very complicated).

I bought a position in Bandwidth (ticker: BAND) after the Premium Service recommended it and after looking at the portfolio of Beth.Technology.

I also run an analysis and the company looks good to me:

Q3 GR +40%
Q3 Net retention 131%
Q4 GR forecast +55%

For all the details: https://investors.bandwidth.com/news-releases/news-release-d…

GM/GR is around 50% so less than the most commented Saas here but in line with Twilio, the company with the closest product.

Market cap: 3.5B
PS: 13,7

My main doubt is coming from the usage during the US elections: in the call transcript, they highlighted that a part of the revenues are coming from activities related to US elections (Combined, these two factors added approximately 12% to our third quarter year-over-year CPaaS revenue growth, with 7% coming from political messaging volumes and 5% from COVID-related usage[…] So in terms of political messaging, we continue at the beginning of the fourth quarter to see strong volumes from political messaging).

What do you think about this company?

Thanks,
Davide

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Davide,

I looked at BAND a while ago (prior to earnings). This is my quick recollection so take it with a grain of salt. Based on those recent results, I put it back on my radar for further investigation.

As noted, I didn’t BAND’s growth and gross margins were as good as alternatives. In addition, I owned TWLO which is a strong competitor in the PAAS space. I also now own API which provides a communication PAAS in China. One other distinction I recall is that BAND owns hard assets - its network. This is costly. I’d prefer to just pay for that commodity rather than own and maintain it.

Yet, you noted that the Q3 revenue growth, and it was a big increase. The Q4 projections are an even bigger jump. Why? Can we expect this to continue, or is it just a surge in growth that is unsustainable? I’ll take a deeper look in the future, but those are my two questions. Do I want to own the network (with theoretically lower margin drag), and are these growth numbers anomalies or a long term trend?

Mike

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