TowerStream Adds Prominent Clients, Revenue Jumps 53%

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August 12, 2008 | SIN Picks | | Author Asif

Commercial wireless internet service provider TowerStream Corp (TWER), which was featured in the July 2008 edition of our investment newsletter reported second quarter results after market close yesterday with revenue increasing a better than expected 53% to $2.49 million when compared to the second quarter of 2007 and an improvement of 20% from Q1 2008. Revenue growth came in higher than the company’s guidance and the expectations of the two analysts that cover the stock. The company added prominent clients like Netflix (NFLX), ESPN (DIS) and Intel (INTC) in the second quarter and on a sequential quarter basis almost every important metric improved except for the net loss which widened to $3.73 million due to capital expenditures and the building out of the company’s sales team.

Some key metrics along with comparisons are given below,

Q2 2008 Q1 2008 Q2 2007
Revenue $2.49 million $2.08 million $1.63 million
Gross Margins 58% 53% 66%
Earnings (Loss) ($3.73 million) ($3.61 million) ($2.39 million)
Cash Burn $4.4 million $4.7 million $2.43 million
ARPU* $797 $735 $669
ARPU New Subscribers $898 $842 $918
Churn Rate 1.17% 1.33% 1.83%

* Average Revenue Per Customer

Revenue for the third quarter is expected to rise 58% year-over-year and 12% on a sequential quarter basis. I view the results as being positive and in anticipation of these results, the market drove the stock up 15.44% yesterday. The stock is now delivering gains of 35.43% since we added it to the SINLetter model portfolio and it might be prudent to take some gains if you are risk averse. However since the company reported that the second quarter represented a peak in terms of cash burn and because it continues to report excellent growth even in this difficult environment (an 8 MBPS upstream/downstream connection for under a grand is a great deal), I am going to retain our position in TowerStream for now.

Full Disclosure: I continue to hold the long position I initiated in my personal portfolio after the July newsletter was sent to subscribers.

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