Stock Commentary

Converge Q2 profit rose 16% y/y, but growth guidance halved

Merkado Barkada
Converge Q2 profit rose 16% y/y, but growth guidance halved

Converge [CNVRG 20.95 3.20%] [link] Q2 net income was P1.98 billion, up 16% from Q2/21 profit of P1.7 billion, and up just 1% from Q1/22 profit of P1.97 billion.

CNVRG’s subscriber count increased to 1,817,115, but the rate of that quarter-on-quarter increase has slowed considerably, from 7% in Q1 to just 1% in Q2.

CNVRG thinks that it will reach 2 million subscribers by the end of the year.

CNVRG execs said that some of its market sectors were “prone to certain shocks”, implying that cost inflation may have played a significant role in the dramatic slowdown that CNVRG has seen so far this year.

The company downgraded its own revenue growth projections for 2022 to just 25-30%, down from the original 50%, saying that “it’s hard to be overly bullish given the reality of what we see today”.

While its Q2 performance is not the kind of “hypergrowth” result that the market is accustomed to seeing from CNVRG, the exec team said that it still represents “very solid revenue growth”.


It’s not often that one could look at a wildly profitable business that is still undergoing double-digit quarterly growth and think, “man, they’ve had a super tough year”, but that’s exactly what I thought when I saw the earnings report and the quotes from CNVRG’s management team.

It’s clear that they are looking at the numbers and are worried about what the rest of the year has in store.

CNVRG added just 15,000 customers in Q2, and for the company to reach 2 million by the end of 2022, it needs to add another 183,000.

That’s a quarterly average of around 91,500 new subscribers, which would normally have been an easy target for the company to hit, but that Q2 subscriber add is shockingly low.

Average revenue per user (ARPU) is also in the process of tanking, having fallen from P18,247 in Q2/21 to just P11,114 in Q2/22.

That’s a 39% drop.

So, the company is still growing, still adding subscribers, and still generating more profit, but the amount of new subscribers has slowed dramatically, and the amount of profit it takes from each of its existing customers has fallen almost 40% over the past year.

Maybe there will be an uptick as schools start up again for Q3, but it’s pretty worrying to see “inflation” causing this much demand destruction for something as basic and productive as home broadband internet. Is CNVRG the dead canary that the rest of the market should be paying attention to, or is it just an odd result that will stand on its own as the funny confluence of so many complicated factors?

The stock is down 23% since this time last year, and down 48% from its October high of almost P40/share. 



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