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Akamai (AKAM) Earnings and Revenues Beat Estimates in Q1

Zacks Equity Research

Akamai Technologies Inc. AKAM delivered non-GAAP first-quarter 2019 earnings of $1.10 per share beating the Zacks Consensus Estimate by 8 cents. The figure also surged 39% from the year-ago quarter (up 42% adjusted for foreign exchange).

Better-than-expected year-over-year growth in earnings can be attributed to robust increase in revenues, lower tax rate and favorable impact of the cost reduction initiatives.

Revenues of $706.51 million outpaced the Zacks Consensus Estimate of $698.36 million and increased 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 Media Division, 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 $47 million, up 6% from the year-ago quarter.



Following the robust results, shares of Akamai are up 6% in the pre-market. Notably, Akamai stock has returned 13% in the past year, outperforming the industry’s rally of 6.9%.

Robust Cloud Security Solutions Growth

Cloud Security Solutions (26.9% of total revenues) revenues were $190.1 million, surging almost 27% 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. The traction gained by Enterprise Application Access and Enterprise Threat Protector also aided growth.

Akamai is gaining from synergies from the buyout of Janrain aimed at enhancing its security solutions portfolio amid growing data traffic. In fact, in the reported quarter, Janrain contributed $4 million to security revenues.

Management remains optimistic over the growing influence of its security solutions. Notably, Kona Site Defender secured “Best Web Application Solution” award at SC Media's 23rd annual SC Awards ceremony, held at RSA Conference in San Francisco during the reported quarter.

Revenues from CDN and other solutions (73.1%) of $516.4 million remained almost flat on a year-over-year basis (up 2% adjusted for foreign exchange).

Segment Details

Web Division (53.3% of total revenues) revenues increased 7% year over year (up 9% adjusted for foreign exchange) to $376.3 million. Solid cloud security solutions growth as well as strong performance from Image Manager and Digital Performance Management solutions drove growth.

Media and Carrier Division (46.7% of total revenues) revenues of $330.2 million increased 5% (up 7% adjusted for foreign exchange) from the year-ago quarter. Management stated that growth was primarily aided by strong traffic growth across many global media accounts of Internet platform users.

Traffic growth was especially strong in gaming, software, video downloads, and, OTT and CDN verticals.

Solid Growth in International Revenues

U.S. revenues were $418.2 million (59.2% of total revenues), down 1% year over year. International revenues (40.8% of total revenues) were $288.3 million, up 17% year over year (up 24% adjusted for foreign exchange) primarily on account of robust growth in Asia Pacific and EMEA region.

Management stated that foreign exchange volatility negatively impacted revenues by $15 million from the year-ago quarter. Further, the foreign exchange movement favoured revenue growth by $1 million sequentially.
 

Akamai Technologies, Inc. Price, Consensus and EPS Surprise

Akamai Technologies, Inc. Price, Consensus and EPS Surprise | Akamai Technologies, Inc. Quote

Operating Details

Adjusted EBITDA margin of 42%, registered an expansion of 400 bps on a year-over-year basis. This can primarily be attributed to higher revenues and improving operational efficiency.

Non-GAAP cash gross margin expanded nearly 100 bps from the year-ago quarter to 78%. Non-GAAP operating margin expanded 500 bps from the year-ago quarter to 30%.

Balance Sheet & Cash Flow

As of Mar 31, 2019, Akamai’s cash and cash equivalents (and marketable securities) were $1.12 billion as compared with $1.89 billion recorded at the end of the previous quarter.

The company generated cash flow from operations of $161 million as compared with $286.2 million in the previous quarter.

Free cash flow came in at $18.4 million, as compared with $168.8 million reported in the previous quarter.

In the reported quarter, Akamai repurchased around 0.5 million shares for $35 million. Further, the company had 164 million shares outstanding as of Mar 31, 2019.

Guidance

For second-quarter 2019, Akamai envisions revenues between $688 million and $702 million. Management anticipates unfavorable foreign exchange and seasonal summer traffic care to impact revenues. The Zacks Consensus Estimate is pegged at $696.23 million.

Non-GAAP earnings are envisioned in the range of 97 cents to $1.02 per share. The Zacks Consensus Estimate is pegged at 98 cents.

Akamai revised guidance for 2019. The company expects full-year 2019 revenues in the range of $2.82-$2.86 billion, compared with previously predicted range of $2.81-$2.85 billion. The Zacks Consensus Estimate is currently pegged at $2.84 billion.

Non-GAAP earnings are now projected to be between $4.05 and $4.20 per share, compared with earlier guided figure of $4.15. The Zacks Consensus Estimate currently stands at $4.09 per share.

Management maintains its plans to achieve non-GAAP operating margin of 30% in 2020.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the broader technology sector are Cadence Design Systems, Inc. CDNS, Avid Technology, Inc. AVID and Synopsys, Inc. SNPS, each sporting 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 Cadence Design, Avid Technology and Synopsys is pegged at 12%, 10% and 10%, respectively.

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