Hi Smurph, Your comments were in two parts so I’ll answer them...

Hi Smurph,

Your comments were in two parts so I’ll answer them each individually.

It's my mistake for not making it clearer as to why I chose to lean heavily on the cash flow statements of NextDC. The thing is, any companies fortunes are the result of long term positive operating cash flows. After all, it is these actual cash amounts, net of expenses, that will end up with shareholders being paid dividends and seeing EPS growth.

The problem with using EBITDA (earnings before interest, tax, depreciation, & amortisation) is it doesn't actually cover the full "costs of doing business". To be honest, Burton Malkiel probably said it best in his book, A random walk down wall street, when talking about the actions of some corporate officers; “Earnings Before I Tricked The Dumb Auditor.” (Page 96, and the whole book is well worth a read). To acknowledge my own bias here, I have a problem with accounting measures of earnings simply because they have time and again proven so easily manipulated.I say that while not for a moment suggesting NextDC is, in any way,manipulating their figures. I simply wouldn’t be smart enough to figure it out if they were after all.

I can appreciate that there is a, not insignificant,time lag between capital spending (that shows up as cash outflow in the investing cash flow statement) and operating cash flow receipts but I simply used (and reported on) the figures publicly available on the annual report. From the 202 report, where operating receipts came to $217m ($54m net), you can look back over the reports from FY14 to FY20 and see that NextDC has spent $1.593b on Plant, Equipment, and the purchase of subsidiaries. From there it is justbasic numerator over denominator to get 54 / 1593 = 0.3389 or 3.4% as a net(cash in hand) return from all of that capital investment.

To speak towards the prediction of price competition has two parts. The first is that predictions are hard. I tried to make that quite clear in my piece and it certainly applies to me also. The second part has a more rational counterfactual. If I were to use your example provided for a moment of first generation data centres being fitted out for a total cost of $150m and later earnings EBITDA of $50m.

I find it difficult to believe that a world where the RBA cash rate is 0.10% and is awash with liquid capital (thanks to an almost world-wide bond buying program) available to invest, that some bright young investment banker wouldn’t have spotted a market providing 30% p.a.EBITDA returns and thought “well shoot, I might just get a decent bonus investing in that”. That is, the bigger the margins are on a product the more they, by virtue of the honey pot of money, attract new capital to compete. Anyone with a search engine can see that there are more and more players in the data centre market. Over time, if it hasn’t already, this should drive competition. NowI see that NextDC is trying to provide a differentiated product by way of the certifications, utilisation rates, and brand marketing. Ultimately though, they operate in a space that will become commoditised. The problem with markets that become commoditised is that the only metric you end up competing on is price.

I really do appreciate the feedback though and I take full responsibility for not making more point more clearly originally. As you are aware, I certainly had enough words in there to do so.