Pentanet hits double-digit profit growth on back of subscriber boom

Telco Pentanet (ASX: 5GG) has today announced its revenue soared by 54 per cent to $16.8 million during FY22, with recurring revenue of $15.2 million now representing nine-tenths of total sales as it continues to capture more of the cloud gaming market.

With more than 182,000 cloud gaming users on its platform, the business grew its telecommunications subscriber base by 34 per cent (4,188) to 16,674, helping to generate a substantial uplift in revenue and gross profit – up 55 per cent on FY21 to $7.4 million.

The Perth-based NextGen internet service provider delivers high-speed internet through its private fixed-wireless network and resells fixed-line services such as NBN, where its wireless is still unavailable.

Pentanet managing director Stephen Cornish said that Pentanet's improved FY22 financial result was achieved during a period of significant investment in network capacity and in establishing the first-to-market cloud gaming business.

"Pentanet is so much more than just another telco. With our ongoing focus on impactful innovation, we are not only contributing to the development of Australia’s digital future but also improving and increasing the ways we connect digitally and IRL (in real life),” he said.

“We aim to continue the growth of our active audience by attracting and retaining subscribers while deploying cutting-edge technology to our owned and operated wireless network to deliver next-level customer experience.

“By continuing to invest in our business in line with our strategy, we will continue to increase margins across our suite of complementary products and services.”

After a significant one-off payment of $8.4 million associated with IPO costs and staff equity payments in FY21, Pentanet’s net loss after tax improved from $13.7 million to $7.9 million in FY22.

EBITDA costs rose from $2.4 million in FY21 to $4.4 million, reflecting increased operating expenses primarily around investment in people, marketing and network coverage expansion efforts.

Swollen operation costs stemmed partly from increasing its marketing investment as a percentage of revenue from 10 per cent in FY22 to 14 per cent during FY22.

Pentanet used the increased budget to expand its product and brand with the national launch of GeForce NOW Powered by Pentanet cloud gaming, and the introduction of neXus.

neXus is Pentanet's next-generation wireless mesh network for Perth, employing Meta’s intelligent terragraph technology to provide subscribers with multiple points of connection that can bounce around obstacles. It can deliver an ultra-high-speed wireless internet connection by removing the traditional fixed wireless line of sight barriers.  

Pentanet also launched eForce NOW, NVIDIA's premiere cloud-based game streaming service, to an eager market of gamers across Australia and New Zealand in October 2021.

The GeForce NOW cloud gaming platform removes the need for expensive gaming hardware and delivers a high-quality gaming experience, allowing gamers to play supported titles in the cloud, streaming gameplay directly from the company's innovative-tech RTX Blade Servers.

To help expand and diversify its service offering and revenue streams in the short and long term, Pentanet invested approximately $3 million in network infrastructure during the year.

It invested an additional $4 million towards acquiring a 13.4 per cent stake in CANOPUS Networks – a future market leader in providing deep, application-aware network visibility using artificial intelligence and machine learning.

The agreement included a commitment for CANOPUS to invest $1.5m in the co-development of Cloud.GG, with Pentanet using CANOPUS' FlowPulse analytics technology to create a rewards and loyalty platform enabled by deep visibility into real-time network traffic.

The business is planning to introduce new mid-tier plans, priced between the existing basic and priority plans, which it expects will drive scale and growth in recurring service revenue and earnings on the platform. It is confident that its introduction can deliver a step-change in the platform’s earnings profile.

Looking into FY23, Pentanet will continue its focus on attracting more off-net customers to higher margin on-net services and diversify their complementary product offering, including GeForce NOW cloud gaming subscription services.

Ending the financial year with a $13.4 million cash balance, the business believes it is well-positioned to continue its growth strategy, with Cornish describing its biggest challenge as methodically evolving the neXus network.