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Akamai (AKAM) Beats on Q1 Earnings & Revenues, Shares Down

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Akamai Technologies Inc. (AKAM - Free Report) reported adjusted first-quarter 2017 earnings (including stock-based compensation expense and amortization of capitalized stock-based compensation) of 53 cents per share, which beat the Zacks Consensus Estimate by a penny.

Adjusted earnings (excluding stock-based compensation expense and amortization of capitalized stock-based compensation but excluding all other non-recurring items and related tax impact) of 69 cents increased 4.5% on a year-over-year basis but declined 4.2% sequentially.

Revenues of $609.2 million beat the Zacks Consensus Estimate of $605 million and increased almost 7.3% from the year-ago quarter (up 8% adjusted for foreign exchange) but declined 1.1% from the previous quarter. The revenues were towards the top end of management’s guided range of $596–$610 million.
 

Akamai Technologies, Inc. Price, Consensus and EPS Surprise

 

Akamai Technologies, Inc. Price, Consensus and EPS Surprise | Akamai Technologies, Inc. Quote

 

Excluding Internet Platform Customers, revenues increased 12.7% year over year (also 15% adjusted for foreign exchange) but remained flat quarter over quarter.

Revenues from Internet Platform Customers were $51.4 million, plunging 29.2% year over year primarily due to the do-it-yourself (DIY) initiatives of building CDN by these customers. Sequentially, revenues from Internet Platform Customers declined 12%.

Amazon.com (AMZN - Free Report) , Apple (AAPL - Free Report) , Facebook , Google, Microsoft, and Netflix are the six large customers in the Internet Platform group.

Shares slumped more than 11% in pre-market trading following the results. We note that Akamai has underperformed the Zacks Internet Services industry on a year-to-date basis. While the stock lost 14.5%, the industry gained 15.8%.



 

Quarter Details

Effective second-quarter 2016, Akamai started reporting its business under three main divisions – Media, Web and Enterprise and Carrier. This marks a shift from the earlier product-focused structure to a customer-focused structure.

Media Division – Revenues remained flat year over year (up 1% when adjusted for foreign exchange) but down roughly 5.1% sequentially to $285.4 million. Excluding Internet Platform customers, revenues advanced 15% from the year-ago quarter.

Web Division – Revenues increased 14.3% year over year (up 15% adjusted for foreign exchange) and 1.5% sequentially to $304.7 million.

Enterprise and Carrier Division – Revenues of $19.2 million surged 24% from the year-ago quarter and 27.6% on sequential basis.

However, in order to give better perspective to its investors, the company continued to report results per old structure (solution category-wise).

Performance & security solutions revenues (almost 60% of total revenue) were up 16.9% year over year (18% adjusted for foreign exchange) to $369.1 million. Of it, $110 million was generated from Akamai’s cloud security solutions, which surged 36% on a year-over-year basis. On a sequential basis, Performance & security increased 0.5%.

Service & support system revenues rose 14.7% year over year to $52.7 million while Media Delivery solutions sales declined 9% year over year to $187.4 million. On a sequential basis, Media Delivery solutions declined 4.4%, while Service & support system remained flat.

Adjusted EBITDA margin declined 200 basis points (bps) from the year-ago quarter and 100 bps from the previous quarter to 39%. Adjusted operating margin declined 250 bps from the year-ago quarter and 110 bps from the previous quarter to 20.1%.

As on Mar 31, 2017, Akamai’s cash and cash equivalents (and marketable securities) were $1.6 billion. The company generated cash flow from operations of $143 million as compared with $181.8 million in the previous quarter.

In the quarter, Akamai repurchased 1.1 million shares for $72 million.

Guidance

For second-quarter 2017, Akamai expects revenues in the range of $597 million to $609 million. The high-end reflects year-over-year growth of 8% in constant currency.

Reported gross margins are expected to be 65%. Adjusted operating expenses are anticipated in the range of $235–$241 million, up sequentially at the mid-point.

EBITDA margin is anticipated to be approximately 37%. Management remains confident about maintaining EBITDA margins in the range of 37–39% in the long-term.

Depreciation is expected to be in the range of $77–$79 million. Adjusted operating margin is anticipated to be 24% for the quarter.

Non-GAAP earnings are projected in the range of 59–61 cents per share.

In terms of capital expenditure, Akamai anticipates to spend approximately $110–$115 million in the quarter.

Our Take

Akamai is likely to benefit from the rising demand for cloud infrastructure solutions, security, mobile products and online video. Additionally, the company is likely to gain from strong foothold in the web applications domain. New products like Enterprise Application Access (EAA) and the Enterprise Threat Protector (ETP) service will expand customer base going ahead.

However, DIY initiatives by the large Internet companies remain a concern for the company’s media delivery business. Moreover, recently launched products like Bot Manager and Image Manager will take some time to fully penetrate the market. Hence, we don’t expect revenue growth to accelerate at least in the near term.

Currently, Akamai carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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