Akamai Technologies Inc. (AKAM - Free Report) delivered non-GAAP second-quarter 2019 earnings of $1.07 per share beating the Zacks Consensus Estimate by 6 cents. The figure also surged 29% from the year-ago quarter (up 32% adjusted for foreign exchange).
Better-than-expected year-over-year growth in earnings can be attributed to robust increase in revenues, and favorable impact of the cost reduction initiatives.
Revenues of $705.07 million outpaced the Zacks Consensus Estimate of $696 million and improved 6% from the year-ago quarter (up 8% adjusted for foreign exchange).
The top line benefited from robust performance of cloud security business, strong traffic witnessed in OTT video vertical and media business, and operational efficiency.
Excluding Internet Platform Customers, revenues increased 6% year over year (up 8% adjusted for foreign exchange) to $659 million. Revenues from Internet Platform Customers were $46 million, up 5% from the year-ago quarter.
Akamai Technologies, Inc. Price, Consensus and EPS Surprise
Solid Growth in Cloud Security Solutions
Cloud Security Solutions (29% of total revenues) revenues were $204.8 million, surging almost 32% year over year (up 34% adjusted for foreign exchange).
Solid growth was driven by strong demand for Kona Site Defender, Bot Manager and Prolexic Solutions. Further, the traction gained by Enterprise Application Access and Enterprise Threat Protector is enabling the company to enhance its competitive position against Zscaler (ZS - Free Report) .
Moreover, Akamai is gaining from synergies from the buyout of Janrain, which is aimed at enhancing the company’s security solutions portfolio amid growing data traffic. In fact, in the reported quarter, Janrain contributed approximately $5.5 million to security revenues.
Management remains optimistic over the growing influence of its new security solutions, including Akamai Enterprise Defender and Akamai Identity Cloud (formerly Janrain Identitiy Cloud).
Revenues from CDN and other solutions (almost 71%) of $500.3 million declined 1% on a year-over-year basis (remaining flat when adjusted for foreign exchange).
Web Division (53.9% of total revenues) revenues increased 8% year over year (up 10% adjusted for foreign exchange) to $380.4 million, primarily on account of solid cloud security solutions growth.
Media and Carrier Division (46.1% of total revenues) revenues of $324.7 million improved 4% (up 6% adjusted for foreign exchange) from the year-ago quarter. Management stated that growth was primarily aided by strong OTT video traffic growth and other global media accounts of Internet platform users.
Traffic growth was especially strong in video downloads, and OTT and CDN verticals. The company witnessed lower traffic in gaming compared with the first quarter.
Robust Growth in International Revenues
U.S. revenues were $416.9 million (59.1% of total revenues), inched up 1% on a year-over-year basis. International revenues (40.9% of total revenues) were $288.2 million, up 15% year over year (up 20% adjusted for foreign exchange) primarily on account of robust performance in Asia Pacific and EMEA region.
Management stated that foreign exchange volatility negatively impacted revenues by $11 million from the year-ago quarter. Further, the foreign exchange movement deterred revenue growth by $2 million sequentially.
Tight Spending Favors Margin Expansion
Adjusted EBITDA margin of 42%, registered an expansion of 300 bps on a year-over-year basis. This can primarily be attributed to higher revenues and improving operational efficiency.
Cash gross margin remained flat on a year-over-year basis at 77%.
Cash operating expenses (as a percentage of revenues) contracted 140 bps from the year-ago quarter to approximately 36%.
Consequently, non-GAAP operating margin expanded 300 bps to 29%.
Balance Sheet & Cash Flow
As of Jun 30, 2019, Akamai’s cash and cash equivalents (and total marketable securities) were $1.33 billion as compared with $1.22 billion reported at the end of the previous quarter.
The company generated cash flow from operations of $318 million as compared with $161 million in the previous quarter.
Free cash flow came in at $184.6 million, compared with $18.4 million reported in the previous quarter.
In the reported quarter, Akamai repurchased around 1.1 million shares for $81 million. Further, the company had 163 million shares outstanding as of Jun 30, 2019.
Bleak Guidance for Q3
For third-quarter 2019, Akamai envisions revenues between $692 million and $706 million, whose mid-point of $699 million is below the current Zacks Consensus Estimate of $703.9 million.
Management anticipates unfavorable foreign exchange and seasonal summer traffic care to impact revenues in the third quarter.
Non-GAAP earnings are envisioned in the range of 98 cents to $1.02 per share. The Zacks Consensus Estimate is pegged at 98 cents.
Raised 2019 View Holds Promise
Akamai revised guidance for 2019 on growing clout of streaming services and increasing adoption of security solutions.
The company expects full-year 2019 revenues in the range of $2.84-$2.87 billion, compared with previously predicted range of $2.82-$2.86 billion. Management anticipates Janrain to contribute $20 million to total revenues in 2019.
Notably, the mid-point of $2.855 billion is higher the current Zacks Consensus Estimate for the period of $2.85 billion.
Non-GAAP earnings are now projected to be between $4.23 and $4.30 per share, compared with earlier guided range of $4.05-$4.20.
Notably, the mid-point of earnings guided range of approximately $4.27 per share is higher the current Zacks Consensus Estimate of $4.18.
The company is optimistic regarding its plans to achieve non-GAAP operating margin of 30% in 2020. Management anticipates accelerated deployment of 5G to be a tailwind over the longer haul.
Zacks Rank & Stocks to Consider
Currently, Akamai carries a Zacks Rank #4 (Sell).
A couple of better-ranked stocks in the broader technology sector worth considering are Alteryx (AYX - Free Report) and Rosetta Stone (RST - Free Report) . Both the stocks flaunt a Zacks Rank #1 (Strong buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for Alteryx and Rosetta Stone is currently pegged at 13.7%, and 12.5%, respectively.
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