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Akamai's (AKAM) Q1 Earnings and Revenues Beat Estimates

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Akamai Technologies (AKAM - Free Report) reported first-quarter 2021 adjusted earnings of $1.38 per share that beat the Zacks Consensus Estimate by 6.15%. The figure improved 15% year over year (up 11% after adjusting for the impact of foreign exchange rates).

Revenues of $842.7 million outpaced the Zacks Consensus Estimate by 1.57% and increased 10% year over year (up 8% after adjusting for forex). Continued momentum witnessed in security and edge solutions as well as higher traffic on its intelligent Edge platform benefited the top line.

Following better-than-expected results and raised guidance for 2021 revenues and earnings, the company’s shares are up more than 3.5% in the pre-market trading on May 5.

Excluding Internet Platform Customers, revenues rose 9% year over year (up 7% after adjusting for forex) to $783.5 million. Revenues from Internet Platform Customers were $59.2 million, up 32% year over year (up 32% after adjusting for forex).

By geography, U.S. revenues were $463.2 million, up 8% year over year. International revenues were $379.5 million, up 13% year over year (up 8% 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

Realignment of Product Group

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

The new groups are aligned with their product offerings. Revenues from the Security Technology Group were previously reported as revenues from Cloud Security Solutions, and revenues from the Edge Technology Group were previously reported as revenues from CDN and all other solutions.

Security Technology Group revenues were $310.2 million, surging 29% year over year (up 27% 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 $10 million in the first quarter.

Amid increased DDoS attacks, Akamai is witnessing increased demand for its security solutions with robust web application firewall capabilities. Management stated that Bot Manager services also witnessed strong bookings in the first quarter.

Also, management stated that Page Integrity Manager security solution is seeing incremental adoption. Markedly, Page Integrity Manager aids enterprises defend against malware and third-party software and applications. Notable companies including Maersk and Groupon adopted Page Integrity Manager in the first quarter.

Further, Akamai expects to gain from the acquisition of Asavie, concluded in the fourth quarter of 2020. Asavie specializes in Internet of Things (IoT), mobile and security solutions.

Management is optimistic on growing clout of the company’s fastest growing security segment Access Control, which hit an annualized revenue run rate of $100 million in the first quarter, up more than 170% year over year and up over 60% organically.

Notably, Access Control segment offers secure connectivity for users, applications, workloads and IoT systems, regardless of their location. Products in this vertical encompass enterprise application access, enterprise threat protector, and new secure mobile and secure IoT solutions that the company acquired from Asavie.

Revenues from Edge Technology Group of $532.5 million increased 2% on a year-over-year basis year (flat after adjusting for forex).

Robust traffic growth, driven by increasing usage of OTT video services and rise in downloads of e-gaming software benefited performance. Management notes that on Mar 16, traffic on the Akamai platform hit an all-time high of 200 terabits per second, marking an increase of 19% over the last peak.

Revenue by Division

Web Division revenues increased 6% year over year (up 4% after adjusting for forex) to $427 million, owing to strong growth in the security business.

Media and Carrier Division revenues of $415.7 million rose 15% (up 13% 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 100 basis points (bps) on a year-over-year basis to 76%.

Adjusted EBITDA margin of 45% expanded 200 bps on a year-over-year basis.

Cash operating expenses, as a percentage of revenues, contracted 230 bps from the year-ago quarter’s levels to 31.7%.

Non-GAAP operating margin expanded 100 bps on a year-over-year basis to 31%.

Balance Sheet & Cash Flow

As of Mar 31, 2021, Akamai’s cash and cash equivalents and marketable securities were $1.288 billion compared with $1.099 billion as of Dec 31, 2020.

The company generated cash flow from operations of $249.8 million compared with $291.1 million reported in the previous quarter. Free cash flow for the first quarter was $85.1 million compared with $123.6 million reported in fourth-quarter 2020.

In the reported quarter, Akamai repurchased 600,000 shares for $58 million. The company has approximately $514 million remaining in its previously announced share repurchase authorization.

Guidance

For second-quarter 2021, Akamai expects revenues between $839 million and $853 million. This suggests 6-7% year-over-year growth and 3-5% in constant currency. The Zacks Consensus Estimate for revenues is currently pegged at $840.13 million, which indicates an improvement of 8.6% from the year-ago reported figure.

Notably, forex is expected to have a negative $3 million impact on a sequential basis and positive $18 million impact on a year-over-year basis.

Cash gross margin is expected to be approximately 76% in the second quarter. Non-GAAP operating expenses are projected between $261 million and $266 million. EBITDA margin is expected to be nearly 45%.

Akamai expects non-GAAP operating margin of nearly 31% for the second quarter.

Non-GAAP earnings are envisioned in the range of $1.35-$1.40 per share. The Zacks Consensus Estimate is pegged at $1.35 per share.

For 2021, Akamai raised revenue and earnings guidance. The company now anticipates revenues between $3.4 billion and $3.435 billion that indicates year-over-year growth of 6-7% and 5-6% on constant currency basis. Previously revenues were guided in the range of $3.37 billion to $3.42 billion.

The Zacks Consensus Estimate for revenues is currently pegged at $3.41 billion, which suggests growth of 6.6% from the year-ago quarter.

Akamai now expects non-GAAP operating margin to be 30-31% for 2021.

Non-GAAP earnings are now projected between $5.45-$5.52 per share, compared with prior guidance of $5.33-$5.46. The Zacks Consensus Estimate is pegged at $5.41 per share, which suggests a rise of 3.6% from the prior-year quarter.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the broader technology sector worth consideration are Synaptics (SYNA - Free Report) , HP Inc (HPQ - Free Report) and NVIDIA (NVDA - Free Report) . All the stocks carry a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate of Synaptics, HP Inc and NVIDIA is pegged at 10%, 7.95% and 15.05%, respectively.

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