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Akamai Technologies (AKAM) Q2 Earnings Beat, Revenues Up Y/Y

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Akamai Technologies (AKAM - Free Report) reported second-quarter 2020 adjusted earnings of $1.38 per share that beat the Zacks Consensus Estimate by 13.1%. The figure surged 29% year over year (up 30% after adjusting for forex).

The year-over-year growth in earnings can be attributed to robust increase in revenues driven by strong demand for Cloud Security Solutions, high traffic levels as more enterprises moved their operations online due to the coronavirus outbreak and operational efficiency.

Notably, peak traffic on the Akamai platform exceeded 100 terabits per second on a daily basis in the second quarter.

Revenues of $794.7 million outpaced the Zacks Consensus Estimate by 3.4% and improved 12.7% year over year (up 14% after adjusting for forex).
 

Akamai Technologies, Inc. Price, Consensus and EPS Surprise

 

Akamai Technologies, Inc. Price, Consensus and EPS Surprise

Akamai Technologies, Inc. price-consensus-eps-surprise-chart | Akamai Technologies, Inc. Quote

Excluding Internet Platform Customers, revenues rose 12.9% year over year (up 14% after adjusting for forex) to $744 million. Revenues from Internet Platform Customers were $50.8 million, up 9.7% year over year.

U.S. revenues were $443.7 million, up 6.4% year over year. International revenues were $351 million, up 21.8% year over year (up 24% after adjusting for forex) primarily on account of robust performance in Asia Pacific and Latin America.

Solid Growth in Cloud Security Solutions

Cloud Security Solutions revenues were $259.3 million, up 26.6% year over year (up 28% after adjusting for forex).

Akamai blocked more than 53 billion credential abuse attempts in the quarter under review, more than four times the number witnessed in the year-ago quarter. The rapid growth in attacks has helped in driving adoption of Bot Manager service which is currently used by more than 600 of the world’s major enterprises.

Moreover, in second quarter, Akamai released Page Integrity Manager. The purpose of the solution is to protect websites and end users from malware-infected content that resides on third-party sites.

Revenues from CDN and other solutions of $535.4 million increased 7% on a year-over-year basis.

Segment Details

Web Division revenues increased 7.1% year over year (up 8% after adjusting for forex) to $404.3 million, owing to strong growth in the security business.

Media and Carrier Division revenues of $390.4 million rose 19.2% (up 20% after adjusting for forex) year over year. Akamai currently supports more than 220 of the world’s largest OTT and broadcasting companies, as well as with 24 of the world’s 25 most popular video game publishers.

Operating Details

Non-GAAP cash gross margin contracted 90 basis points (bps) on a year-over-year basis to 76.6%.

Adjusted EBITDA margin of 44.7% expanded 320 bps on a year-over-year basis.

Cash operating expenses as a percentage of revenues contracted 410 bps from the year-ago quarter to 31.9%.

Non-GAAP operating margin expanded 350 bps on a year-over-year basis to 32.5% higher than management’s expectation of 30%.

Balance Sheet & Cash Flow

As of Jun 30, Akamai’s cash and cash equivalents (and total marketable securities) were $1.37 billion, compared with $1.25 billion as of Mar 31, 2020.

Akamai had total debt of $2.69 billion as of Jun 30.

The company generated cash flow from operations of $298.7 million, up 33.8% sequentially but down 6.1% year over year.

In the reported quarter, Akamai repurchased 0.3 million shares for $27 million. The company has approximately $658 million remaining in its previously-announced share repurchase authorization.

Guidance

For third-quarter 2020, Akamai expects revenues between $760 million and $785 million, suggesting 7-11% growth after adjusting for forex. The Zacks Consensus Estimate for revenues is currently pegged at $763.4 million, which indicates growth of 7.5% from the year-ago quarter’s reported figure.

Revenues are expected to decline sequentially due to a $15-million negative impact from ban on 59 Chinese apps in India (Akamai delivers traffic for roughly 30 of those), moderation in summer traffic and decline in revenues from Internet customers. Notably, forex is expected to have a $6-million positive impact on a sequential basis.

Cash gross margin is expected to be approximately 76% in the third quarter. Non-GAAP operating expenses are projected between $249 million and $260 million, suggesting a slight improvement on a sequential basis. EBITDA margin is expected to be roughly 43%.

Akamai expects non-GAAP operating margin of roughly 30% for the third quarter.

Non-GAAP earnings are envisioned in the range of $1.20-$1.24 per share, indicating 8-12% growth after adjusting for forex. The Zacks Consensus Estimate is pegged at $1.20 per share, which calls for a rise of 9.1% from the year-ago quarter’s reported figure.

Akamai reinstated 2020 guidance. The company currently expects revenues between $3.125 billion and $3.175 billion. The Zacks Consensus Estimate for revenues is currently pegged at $3.11 billion, which indicates growth of 7.5% from the year-ago quarter’s reported figure.

Security business is expected to contribute more than $1 billion.

Adjusted EBITDA margin is expected to be roughly 43%. Non-GAAP operating margin is expected between 30% and 31%.

Non-GAAP earnings are expected between $5.02 and $5.12 per share, indicating year-over-year growth of 12-14%. The Zacks Consensus Estimate is pegged at $4.95 per share, which calls for a rise of 10.24% from the year-ago quarter’s reported figure.

Zacks Rank & Stocks to Consider

Currently, Akamai carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are A10 Networks (ATEN - Free Report) , Dropbox (DBX - Free Report) and Everbridge (EVBG - Free Report) . All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

A10 Networks is set to release quarterly results on Jul 28. Both Dropbox and Everbridge are scheduled to report earnings on Aug 6.

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