Morgan Stanley Moves To Sideline On Bandwidth After 90% Post-IPO Rally

Communication platform Bandwidth Inc BAND made its public market debut on the Nasdaq in November when it offered about 4 million shares in an IPO.

The Analyst

Morgan Stanley analyst Meta Marshall downgraded Bandwith from Overweight to Equal-weight and maintained a $40 price target.

The Thesis

Despite shares rising 90 percent since Bandwith's listing, the company still trades at a discount to growth-adjusted comparables, Marshall said in the Monday note. Larger beats are essential to close the gap, the analyst said. (See Marshall's track record here.)

Such earnings beats may not materialize until mid-2019, given that the company is making investments to drive future growth, Marshall said. The analyst continues to favor the company as one of the "leaders in the CPaaS market."

The growth of current customers, with dollar-based retention rates rising from 111 percent in the third quarter of 2017 to 115 percent in Q1, is encouraging, Marshall said. The analyst is also confident of the existing customer base supporting 20-percent-plus CPaaS growth in 2018, courtesy of ramped up investments.

Morgan Stanley views the stock as one that could outperform if Bandwith grows customers faster than expected; snares a major customer away from competition; and if multiple expansion continues within the stock's comparable group.

"While the group could certainly continue to appreciate, we think it is prudent to take gains until we are more confident that BAND can drive large upside to expectations in 2019," Marshall said.