Akamai Technologies (AKAM) Q2 Earnings: What's in Store?

Zacks Equity Research Published on July 21, 2016

Akamai Technologies, Inc. (AKAM - Free Report) is set to report second-quarter 2016 results on Jul 26. The company reported a positive earnings surprise of 1.96% in the last quarter. It has also delivered an average positive earnings surprise of 4.05% over the four trailing quarters.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Akamai is likely to benefit from the rising demand for cloud infrastructure solutions, security, mobile products and online video. This apart, the other positive factors for the company are growing mobile data traffic and demand for wireless broadband, growth in performance-driven advertising and dynamic transactions in the cloud. Akamai is also likely to benefit from its strong foothold in the web applications domain. Additionally, the company has been re-evaluating its growth strategy, which is a positive for the long run.

However, the setbacks in the company’s media delivery business can pose some concerns going ahead. In the first quarter, Akamai lost two of its largest customers, Apple (AAPL - Free Report) and Netflix (NFLX - Free Report) , which had developed their own CDN. The company might continue to see some negative impact of this on the top line in the to-be-reported quarter as well.In addition, the over-the-top (OTT) video market is seeing some sluggishness as though consumers continue to shift from traditional videos, the rate of conversion has been lower than expected.

For the second quarter of 2016, Akamai expects revenues in the range of $566 million to $582 million. Non-GAAP earnings per share are projected in the range of 62 cents to 65 cents.

Earnings Whispers

Our proven model does not conclusively show that Akamai is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Akamai has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 50 cents.

Zacks Rank: Akamai carries a Zacks Rank #3, which increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stock to Consider

Here's a stock worth considering that, as per our model, has the right combination of elements to post an earnings beat this quarter:

Post Holdings Inc. (POST - Free Report) with an Earnings ESP of +12.77% and a Zacks Rank #1.

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