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Akamai (AKAM) Q1 Earnings and Revenues Surpass Estimates

Zacks Equity Research

Akamai Technologies, Inc. AKAM reported non-GAAP first-quarter 2020 earnings of $1.20 per share, which beat the Zacks Consensus Estimate by 4.4%. The figure also increased 9% from the year-ago quarter (up 11% adjusted for foreign exchange).

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

Revenues of $764.3 million outpaced the Zacks Consensus Estimate by 2.2% and improved 8% from the year-ago quarter’s figure (up 9% adjusted for foreign exchange).

The top line benefited from robust performance of cloud security business and increased traffic as more enterprises moved their operations online due to the coronavirus outbreak.

Excluding Internet Platform Customers, revenues rose 9% year over year (up 10% adjusted for foreign exchange) to $719.6 million.

Revenues in Internet Platform Customers were $44.7 million, down 5% from the year-ago quarter’s figure.

Notably, shares of Akamai have returned 18% in the year-to-date period compared with the industry’s decline of 4.5%.

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

 

Solid Growth in Cloud Security Solutions

Cloud Security Solutions revenues were $240.3 million, up 26% year over year (up 28% adjusted for foreign exchange).

Solid growth was driven by strong demand for its DDoS prevention, application-layer firewall and bot management services. Further, Akamai’s next-gen Zero Trust enterprise security solutions witnessed robust adoption during the quarter.

Management is optimistic regarding the growing influence of its new security solutions, including Secure Web Gateway, Page Integrity Manager and Akamai Enterprise Defender. The company also expects demand for security solutions to increase owing to the outbreak as attackers are taking advantage of the pandemic.

Revenues from CDN and other solutions of $524 million dropped 1% on a year-over-year basis (up 2% adjusted for foreign exchange).

Segment Details

Web Division revenues increased 8% year over year (up 10% adjusted for foreign exchange) to $406 million, owing to strong growth in the security business.

Media and Carrier Division revenues of $358.3 million rose 8% (up 9% adjusted for foreign exchange) from the year-ago quarter’s figure. Management stated that growth was primarily driven by robust demand for OTT video services, gaming, social media, news and information sites as people were forced to stay at home due to the pandemic.

Robust Growth in International Revenues

U.S. revenues amounted to $428.9 million, up 3% on a year-over-year basis. International revenues were $335.4 million, up 16% year over year (up 19% adjusted for foreign exchange) primarily on account of robust performance in Asia Pacific and Japan.

Management stated that foreign exchange volatility affected revenues by $7 million on a year-over-year basis.

Margins in Detail

Adjusted EBITDA margin of 43% expanded 100 basis points (bps) on a year-over-year basis.

Non-GAAP Cash gross margin contracted 100 bps on a year-over-year basis to 77%.

Cash operating expenses (as a percentage of revenues) contracted 172 bps from the year-ago quarter’s level to 34%.

Non-GAAP operating margin remained flat year over year at 30%.

Balance Sheet & Cash Flow

As of Mar 31, Akamai’s cash and cash equivalents (and total marketable securities) were $1.249 billion compared with $1.537 billion as of Dec 31, 2019.

Akamai had total debt of $2.3 billion as of Mar 31, flat year over year.

The company generated cash flow from operations of $223.2 million compared with $282.1 million in the previous quarter.

In the reported quarter, Akamai repurchased 0.9 million shares for $81 million. Further, the company had 162 million shares outstanding as of Mar 31, 2020.

Free cash flow came in at $7.8 million compared with $148.5 million reported in the previous quarter.

Guidance

For first-quarter 2020, Akamai expects revenues between $752 million and $778 million. The Zacks Consensus Estimate for revenues is currently pegged at of $752.1 million, which indicates growth of 6.7% from the year-ago quarter’s reported figure.

Non-GAAP earnings are envisioned in the range of $1.18-$1.24 per share. The Zacks Consensus Estimate is pegged at $1.16, which calls for a rise of 8.4% from the year-ago quarter’s reported figure.

The company has withdrawn its guidance for 2020, thanks to uncertainties related to the global pandemic.

Zacks Rank & Other Stocks to Consider

Currently, Akamai carries a Zacks Rank #2 (Buy).

Netlist, Inc. NLST, Pixelworks, Inc. PXLW and InterDigital, Inc. IDCC are some other top-ranked stocks worth considering in the broader computer and technology sector, each flaunting 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 Netlist and InterDigital is pegged at 15% each, while the same for Pixelworks is at 20%.

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Akamai Technologies, Inc. (AKAM) : Free Stock Analysis Report
 
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