Why Bandwidth Rocketed Higher Today
Key Points
Bandwidth guided for an acceleration of revenue and profit growth in 2026.
Management also noted a huge uptick in third-party AI developers using its platform over the past six months.
Shares look cheap on the surface, but investors need to be wary of high stock compensation and debt.
Shares of communications platform-as-a-service company Bandwidth (NASDAQ: BAND) were rocketing higher on Thursday, with shares up 14.5% as of 3:37 p.m. EDT.
Bandwidth reported fourth-quarter earnings today, delivering mixed results, with a revenue miss but a profit beat. However, as is the case with most earnings reports, investors focused on guidance, which forecast an acceleration in revenue for 2026, along with margin expansion.
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Bandwidth's AI-enabled voice applications gain traction
In the fourth quarter, Bandwidth's revenue declined slightly, by 1.1%, to $208 million, while adjusted (non-GAAP) earnings per share of $0.35 fell by 5%, but beat expectations by $0.02.
A decline in revenue may seem like grounds for a sell-off rather than a rally, but Bandwidth's voice and messaging business benefits a lot in election years, and 2025 was an off-year. Management noted on the conference call with analysts that, on an organic basis, stripping out the effect of political revenue in 2024, revenue actually grew 12%.
Looking ahead to 2026, management also forecasts a reacceleration to 16% full-year revenue growth, with adjusted EBITDA expected to grow an even higher 29%, and 19% adjusted EPS growth.
What also might have gotten investors excited; management noted that the number of third-party voice AI developers building on Bandwidth's platform had more than quadrupled in the past six months.
Image source: Getty Images.
Bandwidth looks extremely cheap even after today's rise
As of this writing, Bandwidth's share price is $14.88, which means shares are only trading at 8.8 times the recent 2026 adjusted earnings guidance.
While that may seem extremely cheap, there are a few caveats. Bandwidth's stock-based compensation is a bit high for its size, at $54 million, which ate up more than 100% of 2025 adjusted EPS. Furthermore, the company has about $254 million of convertible debt as well, on top of the $454 million market cap. So, the "cheapness" of the stock may be a bit misleading.
Still, Bandwidth believes it can grow its cloud communications business by double-digits into the future, outside of cyclical political spending. That makes it a small-cap stock to watch in the communications space.
Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool recommends Bandwidth. The Motley Fool has a disclosure policy.