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Akamai Technologies (AKAM) Down 4.6% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Akamai Technologies (AKAM - Free Report) . Shares have lost about 4.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Akamai Technologies due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Akamai Q4 Earnings Beat Estimates on Higher Revenues

Akamai reported modest fourth-quarter 2023 results, with the bottom surpassing the Zacks Consensus Estimate but the top line missing the same. The company recorded higher revenues year over year, driven by solid momentum in security and compute verticals. Growing adoption of API security solutions in various industries and healthy demand for Akamai Connected Cloud drove the top line.

Net Income

GAAP net income improved to $161.2 million or $1.03 per share from $128.8 million or 82 cents per share in the year-ago quarter. The growth is primarily attributed to year-over-year top-line expansion during the quarter.

Non-GAAP net income was $262.6 million or $1.69 per share, up from $216.4 million or $1.37 per share a year ago. The bottom line beat the Zacks Consensus Estimate by 10 cents.

In 2023, GAAP net income was $547.6 million or $3.52 per share compared with $523.7 million or $3.26 per share in 2022. In 2023, non-GAAP net income rose to $960 million or $6.20 per share from $857.7 million or $5.37 million in the prior year.

Revenues

Quarterly net sales were $995 million compared with $927.8 million reported in the year-ago quarter. The 7% year-over-year uptick is driven by rising customer engagement in the Security and Compute businesses. However, revenues missed the Zacks Consensus Estimate by $3 million.

In 2023, Akamai generated $3.81 billion in revenues, up from $3.61 billion in 2022.

By product groups, revenues from Security Technology Group were $471 million compared with $400.2 million in the year-ago quarter. The 18% year-over-year growth was primarily driven by strong demand for Guardicore Segmentation Solution. Several major financial institutions and retail brands in Europe and North America deployed Akamai’s API security solution during the quarter. However, net sales fell short of our estimate of $478.6 million.

The Delivery segment contributed $389 million, down from $415.2 million in the year-ago quarter. Despite the year-over-year decrease, contracts acquired from StackPath and Lumen partially supported the top line in this vertical. The segment’s revenues surpassed our estimate of $380.6 million.

The Compute segment registered $135 million in revenues, up from $112.4 million in the prior-year quarter, backed by healthy demand for its cloud computing solution. The newly launched Generalized Edge Compute is also gaining significant market traction. The top line beat our estimate of $130.5 million.

Region-wise, net sales from the United States came in at $516.3 million, up 7% year over year. International revenues stood at $478.7 million, up from $445 million in the year-earlier quarter.

Other Details

In the December quarter, total operation expenses rose to $810.2 million from $760.3 million. Non-GAAP income from operations improved to $302.7 million from $257.6 million, with respective margins of 30% and 28%. Adjusted EBITDA was $426 million, up from $381.7 million in the year-ago quarter.

Cash Flow & Liquidity

In the fourth quarter of 2023, Akamai generated $389.2 million in cash from operating activities compared with $341.5 million in the prior-year quarter. In 2023, the company generated $1.34 billion in cash from operations compared with $1.27 billion in 2022.

As of Dec 31, 2023, the company had $489.5 million in cash and cash equivalents with $774.8 million of operating lease liabilities compared with respective tallies of $542.3 million or $693.3 million in 2022. During the quarter, it repurchased approximately 0.5 million shares for around $55 million.

Outlook

For the first quarter of 2024, Akamai expects revenues in the range of $980-$1,000 million. Non-GAAP operating margin is projected to be in the range of 29-30%. Non-GAAP earnings are forecasted to be in the range of $1.59-$1.64 per share. Capital expenditure is anticipated to be 15% of revenues.

For 2024, Akamai expects revenue growth rates in the range of 6-8% year over year. It expects a non-GAAP operating margin of 30%. Non-GAAP earnings are now projected to grow in the range of 7-11% year over year. Capital expenditure is likely to be around 15% of total revenues.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

At this time, Akamai Technologies has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Akamai Technologies has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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