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Akamai's (AKAM) Q4 Earnings and Revenues Beat Estimates

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Akamai Technologies (AKAM - Free Report) reported fourth-quarter 2020 adjusted earnings of $1.33 per share that beat the Zacks Consensus Estimate by 0.8%. The figure rose 8% year over year (up 6% after adjusting for forex).

Revenues of $846.3 million outpaced the Zacks Consensus Estimate by 1.9% and increased 10% year over year (up 8% after adjusting for forex). Continued momentum seen in security solutions as well as higher traffic on its intelligent Edge platform benefitted the top line.

Despite better-than-expected results, share are down 7.9% in the pre-market trading on Feb 10.

Excluding Internet Platform Customers, revenues rose 9% year over year (up 8% after adjusting for forex) to $789 million. Revenues from Internet Platform Customers were $58 million, up 11% year over year.

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

 

U.S. revenues were $467 million, up 5% year over year. International revenues were $379 million, up 16% year over year (up 13% after adjusting for forex).

Akamai Announces Realignment

Akamai also announced an organizational realignment. Beginning Mar 1, 2021, the company will have two new business groups — Security Technology and Edge Technology. Notably, both the business groups will have a unified sales organization, added Akamai. 

Adam Karon will serve as the chief operating officer and general manager for Edge Technology Group, while Rick McConnell will serve as president and general manager of the Security Technology Group. PJ Joseph will lead Akamai’s Global Sales Organization.

Akamai also named Dr. Robert Blumofe as the company’s new chief technology officer.

Continued Strength in Cloud Security Solutions

Cloud Security Solutions revenues were $296 million, up 24% year over year (up 23% after adjusting for forex). The top line was driven by robust demand for web security solutions as well as contribution from Asavie acquisition. The acquisition of Asavie contributed $8 million in the fourth quarter.

Amid increased DDoS attacks, Akamai is witnessing increased demand for its Prolexic services. Management stated that Bot Manager services also witnessed strong bookings in the fourth quarter.

Also, management stated that Page Integrity Manager security solution and Secure Web Getaway are seeing incremental adoption.

Further, Akamai announced that it concluded the acquisition of Asavie in the fourth quarter of 2020. Asavie specializes in Internet of Things (IoT), mobile and security solutions.

Revenues from CDN and other solutions of $550.2 million increased 3% on a year-over-year basis year (up 2% after adjusting for forex).

Segment Details

Web Division revenues increased 5% year over year (up 4% after adjusting for forex) to $438 million, owing to strong growth in the security business.

Media and Carrier Division revenues of $408 million rose 15% (up 14% after adjusting for forex) year over year. The segment’s top line was driven by higher traffic video streaming and gaming software downloads.

Operating Details

Non-GAAP cash gross margin contracted 200 basis points (bps) on a year-over-year basis to 76%.

Adjusted EBITDA margin of 43% expanded 200 bps on a year-over-year basis.

Cash operating expenses, as a percentage of revenues, contracted 380 bps from the year-ago quarter’s levels to 33.1%.

Non-GAAP operating margin expanded 100 bps on a year-over-year basis to 30%.

Balance Sheet & Cash Flow

As of Dec 31, 2020, Akamai’s cash and cash equivalents and marketable securities were $1.099 billion compared with $1.444 billion as of Sep 30, 2020.

The company generated cash flow from operations of $291.1 million compared with $402 million reported in the previous quarter. Free cash flow for the fourth quarter was $123.7 million compared with $173.2 million reported in third-quarter 2020.

In the reported quarter, Akamai repurchased 0.7 million shares for $72.5 million. The company has approximately $572 million remaining in its previously-announced share repurchase authorization.

2020 Numbers in Details

Akamai reported non-GAAP revenues of $3.198 billion in 2020, up 11% (up 11% after adjusting for forex) over 2019 tally. The Zacks Consensus Estimate was pegged at $3.18 billion.

Non-GAAP earnings per share was $5.22, up 16% (up 16% after adjusting for forex) from $4.49 reported for 2019.

Non-GAAP operating margin expanded 200 bps to 31% while non-GAAP adjusted EBITDA margin expanded 200 bps to 44%.

In 2020, Akamai generated cash flow from operations of $1.215 billion compared with $1.058 million in the previous year. Free cash flow for full year was $483.1 million compared with $496.2 million reported in 2019.

For 2020, the company repurchased 2 million shares worth $193.6 million.

Guidance

For first-quarter 2021, Akamai expects revenues between $822 million and $836 million. This suggests 5-7% year-over-year growth in constant currency. The Zacks Consensus Estimate for revenues is currently pegged at $817.6 million, which indicates growth of 7% from the year-ago quarter’s reported figure.

Notably, forex is expected to have a $4-million and $16-million positive impact on a sequential basis and year-over-year basis, respectively.

Cash gross margin is expected to be approximately 76% in the first quarter. Non-GAAP operating expenses are projected between $265 million and $270 million. EBITDA margin is expected to be nearly 44%.

Akamai expects non-GAAP operating margin of nearly 30% for the first quarter.

Non-GAAP earnings are envisioned in the range of $1.28-$1.31 per share. The Zacks Consensus Estimate is pegged at $1.28 per share, which calls for a rise of 6.7% from the year-ago quarter’s reported figure.

For 2021, Akamai expects revenues between $3.37 billion and $3.42 billion that indicates year-over-year growth of 4-6% on constant currency basis. Notably, forex is expected to have a $45-million positive impact on revenues for 2021 on a year over year basis. 

The Zacks Consensus Estimate for revenues is currently pegged at $3.39 billion, which indicates growth of 6.7% from the year-ago quarter’s reported figure.

Akamai expects Non-GAAP operating margin to be 30% for 2021.

Non-GAAP earnings are expected between $5.33 and $5.46 per share. The Zacks Consensus Estimate is pegged at $5.46 per share, which calls for a rise of 4.9% 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 Shopify (SHOP - Free Report) , CrowdStrike (CRWD - Free Report) and Workday (WDAY - Free Report) . Shopify flaunts a Zacks Rank #1 (Strong Buy), while CrowdStrike and Workday carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 (Strong Buy) Rank stocks here.

Shopify, Workday and CrowdStrike are scheduled to release earnings on Feb 17, Feb 25 and Mar 16, respectively.

Long-term earnings growth rate for Shopify, CrowdStrike and Workday are currently pegged at 32.5%, 25%, and 25.4%, respectively.

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