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Cogent Suffers Stock Slump

Enterprise broadband access service provider Cogent Communications Holdings Inc. (Nasdaq: CCOI) saw its stock fall more than 20 percent Tuesday on the heels of second-quarter earnings that missed expectations. (See Cogent Reports Q2.)

Although the company, which provides Ethernet access connections to nearly 14,000 small and medium-sized businesses, reported a narrower net loss than analysts had expected, its slight revenue shortfall and outlook for the third quarter prompted a revaluation by investors. With trading volumes four times higher than normal, Cogent's stock dropped by $6.51, or 22 percent, to close at $22.89.

The operator narrowed its net loss to $9.2 million, or 19 cents per share, compared with a loss of $15.5 million, or 34 cents per share, a year ago. Analysts had expected a loss of 21 cents per share.

Second-quarter revenues of $45.1 million, up by 3 percent sequentially and nearly 25 percent year on year, were slightly short of the expected $45.9 million.

The service provider expects revenues of $46.5 million to $47.5 million and a net loss per share of 18 to 23 cents for the third quarter. Analysts had, on average, forecast revenues of $48.2 million and a net loss of 20 cents per share.

The dramatic dip in share price appears to reflect more realistic expectations of Cogent's ongoing growth, according to one analyst.

"The stock had been trading at a very high multiple," says Jonathan Atkin, an analyst with RBC Capital Markets . "[Cogent] had talked in the past about 9 to 10 percent sequential revenue growth, but now that target seems to be challenging," he adds.

In addition, Cogent's share price was due for a reassessment, having grown steadily during the past 12 months from $8.21 a year ago to as high as $34.61 in mid July. "I think it's a fair assessment to say that they're going through a correction," says Atkin.

Atkin had downgraded Cogent from "sector outperform" to "sector perform" last quarter. No other analysts have downgraded the stock in lieu of today's earnings as yet.

— Raymond McConville, Reporter, Light Reading

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