Internap Bashed: Margins Shrinking, Customers Leaving

Internap Network Services (INAP) late yesterday posted Q1 revenues of $63.9 million an adjusted EBITDA of $4.5 million, consistent with its previous forecast of $62 million to $65 million in revenues and $4 million to $5 million in adjusted EBITDA. The adjusted EPS loss of 7 cents was in line with the Street.

Several items appear to have provoked a sell-off in the shares. For starters, EBITDA margins are shrinking. The company said adjusted EBITDA margin in the quarter was 7%, down from 15.4% a year ago, and 14.3% in the fourth quarter. The company also said customer count fell by a net 137 in the quarter to 3,174. And not least, the company declined to give any June quarter guidance. Internap said its data center business saw growth and expanding margins, but weaker revenue and profitability continued in its Internet services and content delivery network business.

Kaufman Bros. analyst Colby Synesael this morning asserted that the company’s biggest issue “is that it needs to justify its value proposition to its customers and to its investors.” He contends that the company is in the early stages of what he expects will be a prolonged turnaround that could require the divestiture or shut down of some business units.” Synsael maintains a Hold rating on the stock.

INAP today is down 47 cents, or 16.3%, to $2.41.