Internet service provider Cogent Communications (NASDAQ:CCOI) fell short of the market’s revenue expectations in Q2 CY2025, with sales falling 5.5% year on year to $246.2 million. Its non-GAAP loss of $0.81 per share was 31.4% above analysts’ consensus estimates.
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Cogent (CCOI) Q2 CY2025 Highlights:
- Revenue: $246.2 million vs analyst estimates of $248.1 million (5.5% year-on-year decline, 0.7% miss)
- Adjusted EBITDA: $48.5 million vs analyst estimates of $74.84 million (19.7% margin, 35.2% miss)
- Operating Margin: -12.8%, up from -18.1% in the same quarter last year
- Market Capitalization: $1.46 billion
StockStory’s Take
Cogent’s second quarter was marked by a significant negative market reaction, as the company’s revenue results missed Wall Street expectations while reporting a year-over-year sales decline. Management attributed the underperformance primarily to the ongoing process of exiting low-margin, off-net contracts acquired from Sprint, which continued to weigh on the top line. CEO Dave Schaeffer described the current period as a transition, noting that “revenue growth that we are experiencing is almost exclusively on-net services,” and highlighted progress in expanding high-margin offerings like Wavelength and IPv4 leasing. The company’s focus on improving sales force productivity and cost control also contributed to sequential improvements in operating margin.
Looking ahead, Cogent’s management emphasized that the company is nearing completion of the transition away from unprofitable legacy Sprint contracts, with expectations to return to positive revenue growth in the next quarter. Management highlighted confidence in further margin expansion, supported by the scaling of on-net and Wavelength services as well as continued demand from AI and video streaming sectors. Schaeffer stated, “We feel very comfortable that we will replicate the type of margin expansion that Cogent historically had prior to acquiring Sprint,” while also cautioning that data center monetization remains uncertain in timing and value. The company’s long-term targets rely on capturing greater market share in Wavelength and sustaining high sales force productivity.
Key Insights from Management’s Remarks
Management cited the swift migration to higher-margin services and operational improvements as key factors shaping both second quarter results and the company’s future outlook.
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Exit from low-margin Sprint contracts: Cogent is in the final stages of phasing out low-margin off-net contracts and noncore products inherited from Sprint, which has led to revenue declines but improved profitability metrics. Management explained that this “grooming” process is essential for restoring sustainable top-line growth and margin expansion.
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Wavelength services gaining traction: Although Wavelength revenue is still a small part of the overall business, it rose 150% year-over-year, with management citing strong sequential growth and a growing backlog. The company is focused on quality and rapid provisioning, which management believes will help gain market share in a competitive space serving hyperscalers and content distributors.
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Improved sales force productivity: The sales team delivered higher productivity, with installed orders per representative rising to 4.8 from 3.8 quarter-over-quarter. Management credits this improvement to better targeting of on-net opportunities and a more disciplined approach to managing underperforming representatives.
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Cost control and margin expansion: Sequential declines in SG&A expenses and a 200-basis-point improvement in operating margin reflect continuing cost discipline. Management highlighted that margin gains are primarily a result of the service mix shift toward higher-margin offerings.
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Data center divestiture process ongoing: Cogent continues to explore opportunities to monetize its data center portfolio, with several interested parties submitting offers. However, management cautioned that no binding agreements have been reached, and the timing and proceeds from any sale remain uncertain.
Drivers of Future Performance
Cogent’s outlook centers on completing the transition to higher-margin services, scaling its Wavelength business, and managing capital allocation as it delevers and targets profitable growth.
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Return to positive revenue growth: Management expects the end of legacy Sprint contract expirations to allow for positive sequential revenue growth beginning in the next quarter. The company’s focus on selling on-net and Wavelength services is expected to drive higher contribution margins, with management reiterating a long-term annual revenue growth target of 6% to 8%.
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Margin expansion and deleveraging: Cogent anticipates continued adjusted EBITDA margin expansion of roughly 200 basis points per year, driven by a shift to on-net and Wavelength revenues and ongoing cost management. Management believes this will support efforts to reduce leverage, especially as T-Mobile payment subsidies phase out.
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Uncertainty around data center monetization: While data center sales could provide additional liquidity, management made clear that the process remains unpredictable. Offers range widely in value, and the lack of binding deposits from buyers introduces risk to the timing and magnitude of any deal.
Catalysts in Upcoming Quarters
Looking forward, StockStory analysts will monitor (1) Cogent’s ability to generate positive sequential revenue growth as legacy Sprint contracts expire, (2) progress in scaling Wavelength services and converting backlog to billable revenue, and (3) the outcome of ongoing efforts to monetize data center assets. Sustained improvements in sales force productivity and margin expansion will also serve as key indicators of execution.
Cogent currently trades at $32.00, down from $43.87 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free).
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