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Zacks Initiates Coverage of Tucows With Neutral Recommendation

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Zacks Investment Research has recently initiated the coverage of Tucows Inc. (TCX - Free Report) with a “Neutral” recommendation. Tucows, a Canadian company, is experiencing promising growth across its various segments but faces significant challenges that balance its potential.

Tucows' growth is highlighted by a 25.6% year-over-year increase in Ting Internet subscribers and an 8.7% rise in net revenues for the first quarter of 2024. These improvements are driven by the expansion of serviceable addresses and robust performances across all segments.

Additionally, the company's foray into Web3 through the Orange Domains venture positions it as a front-runner in emerging technologies. Tucows reported a 38.7% year-over-year increase in adjusted EBITDA.

Ting Internet provides high-speed internet services through Gigabit Fiber and Fixed Wireless, focusing on both consumer and business markets in the United States. Ting's strategic expansion has led to a 22.5% year-over-year increase in serviceable addresses in the first quarter of 2024.

Wavelo offers cloud-based software solutions for Communication Service Providers, supporting subscription management and network orchestration. This segment contributed significantly to the company's gross profit growth. Tucows Domains, the largest segment, offers wholesale and retail domain registration services, serving more than 35,000 resellers in nearly 200 countries. This segment accounted for 71% of the company's total revenues in 2023.

The research report highlights several key factors that could drive Tucows' growth. The company's strategic investments in future-proof fiber networks and high-quality infrastructure position it well for long-term growth in the increasingly digital and connected world. Moreover, Tucows’ commitment to innovation and customer satisfaction is evident in its expanding footprint and competitive edge in customer service and technological advancements.

However, potential investors should be aware of the challenges highlighted in the report. Despite its growth, Tucows faces substantial debt, with $205 million in revolvers and $223.8 million in notes payable. The company reported a net loss of $26.5 million in the first quarter of 2024, attributed to rising operating costs and negative cash flow from operations. Tucows' strategic pivot to more competitive urban markets may further increase costs and pressure margins.

The company has made significant investments in cybersecurity and infrastructure, enhancing its resilience and market competitiveness. However, its high debt levels and operational challenges present financial risks. The competitive landscape, particularly in the fixed-fiber Internet market, adds pressure.

In terms of valuation, Tucows’ stock performance has lagged its subindustry and sector peers, reflecting the market’s cautious stance on the company’s financial health and strategic direction. The stock is trading at lower multiples than its peers, which could either represent an undervaluation opportunity or a justified discount due to the associated risks.

For a comprehensive analysis of TCX's financial health, strategic initiatives and market positioning, you are encouraged to view the full Zacks research report. This detailed report explores the company's operational strategies and financial performance, highlighting potential risks and opportunities that may impact its direction.

Read the full Research Report on Tucows here>>>

Note: Our initiation of the coverage on Tucows, which has a modest market capitalization of $232.9 million, aims to equip investors with the information needed to make informed decisions in this promising but inherently risky segment of the market.

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