Akamai Technologies Inc. (AKAM - Free Report) reported non-GAAP third-quarter 2019 earnings of $1.1 per share beating the Zacks Consensus Estimate of $1.01. The figure also surged 17% from the year-ago quarter (up 18% 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 $710 million outpaced the Zacks Consensus Estimate of $702 million and improved 6% from the year-ago quarter (up 7% 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 7% adjusted for foreign exchange) to $666 million. Revenues from Internet Platform Customers were $44 million, up 2% from the year-ago quarter.
Solid Growth in Cloud Security Solutions
Cloud Security Solutions revenues were $216 million, surging almost 28% year over year (up 29% 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 providing the company a competitive edge against Zscaler.
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.
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 of $493.9 million declined 1% on a year-over-year basis (down 1% adjusted for foreign exchange).
Web Division revenues increased 9% year over year (up 10% adjusted for foreign exchange) to $390 million, primarily on account of solid cloud security solutions growth.
Media and Carrier Division revenues of $320 million improved 2% (up 3% 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.
Robust Growth in International Revenues
U.S. revenues were $413 million, flat on a year-over-year basis. International revenues were $297 million, up 15% year over year (up 18% adjusted for foreign exchange) primarily on account of robust performance in Asia Pacific and EMEA region.
Management stated that foreign exchange volatility affected revenues by $6 million from the year-ago quarter. Further, the foreign exchange movement deterred revenue growth by $2 million sequentially.
Adjusted EBITDA margin of 42%, registered an expansion of 100 bps on a year-over-year basis. This can primarily be attributed to higher revenues and improving operational efficiency.
Cash gross margin expanded 100 bps on a year-over-year basis at 78%.
Non-GAAP operating margin expanded 200 bps to 29%.
Balance Sheet & Cash Flow
As of Sep 30, 2019, Akamai’s cash and cash equivalents (and total marketable securities) were $1.57 billion as compared with $1.33 billion reported at the end of the previous quarter.
The company generated cash flow from operations of $293.8 million as compared with $318 million in the previous quarter.
In the reported quarter, Akamai repurchased around 2 million shares for $176 million. Further, the company had 162 million shares outstanding as of Sep 30, 2019.
Guidance for Q4
For fourth-quarter 2019, Akamai envisions revenues between $735 million and $755 million. The Zacks Consensus Estimate for revenues is currently pegged at of $747.7 million.
Non-GAAP earnings are envisioned in the range of $1.10 to $1.15 per share. The Zacks Consensus Estimate is pegged at $1.11.
Raised 2019 Outlook
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 $2.857-$2.877 billion, compared with previously predicted range of $2.84-$2.87 billion. The Zacks Consensus Estimate for the period is pegged at $2.86 billion.
Non-GAAP earnings are now projected to be between $4.36 and $4.42 per share, compared with earlier guided range of $4.23 and $4.30 per share. The Zacks Consensus Estimate for the period is pegged at $4.27.
The company is optimistic regarding plans to achieve non-GAAP operating margin of 29% in 2019. Adjusted EBITDA margin for fiscal 2019 is expected to 42%.
Zacks Rank & Other Stocks to Consider
Currently, Akamai carries a Zacks Rank #2 (Buy).
Some other top-ranked stocks in the broader technology sector are Vonage Holdings Corp. (VG - Free Report) , Hewlett Packard Enterprise Company (HPE - Free Report) and Taiwan Semiconductor Manufacturing Company Ltd. (TSM - Free Report) . Each of 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 Vonage, Hewlett Packard Enterprise and Taiwan Semiconductor is currently pegged at 5%, 7.1% and 10.4%, respectively.
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