Hosting is in my blood.
I can thank my six years at Peer 1 for that.
It was a period of high growth for the company. Existing customers were spending more. Larger, new customers were being added. Competitive products were being launched faster. And the customer service experience was at an all time high.
So, why was I still so damn worried all the time?
It gets back to basics. No matter how fast an organization is growing or how successful it is on one (or several) front, its long-term viability boils down to how efficiently cash flows IN and cash flows OUT of the business. In my case, I was obsessed with establishing and maintaining a healthy EBITDA margin quarter-over-quarter, year-over-year. Top-line revenue could be at an all-time high, but if it coincided with a drop in EBITDA, I sweated. Same with our return on capital (ROC) with hosting being such a capex-heavy business.
In this industry, EBITDA drives valuation and determines the amount of cash flow being generated from operations that can be re-invested back into the business. Consistently increasing revenue, maximizing EBITDA and optimizing capex remain key to maximizing shareholders’ value.
Peer 1 wasn’t any different. Its EBITDA was the main determinant in it’s overall valuation. The final purchase price to Cogeco Cable of $526 million back in January represented a 12.1X EBITDA, or a healthy 32 percent premium over Peer 1’s 20-day volume weighted average share price. Our strict management of EBITDA eventually paid off.
I finally stopped sweating.
Cloud Changed Everything
It was during my time at Peer 1, that I experienced just how rapidly the the hosting landscape was changing.
After years of them being simply a rumour, suddenly we found ourselves competing with Amazon Web Services (AWS) on our dedicated hosting offerings. Soon after, we were competing with them AND Rackspace Cloud on some of our managed hosting solutions. It became clear that this was less of a short-term market fascination with cloud computing–or water vapor–and more so a movement that would force smaller hosting providers to forever change the way they operate. The time had come to start treating servers like cows and not puppies to survive in this new era.