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A month has gone by since the last earnings report for Akamai Technologies (AKAM). Shares have lost about 8.3% 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 the most recent earnings report in order to get a better handle on the important catalysts.
Akamai Q4 Earnings and Revenues Surpass Estimates
Akamai Technologies reported fourth-quarter 2020 adjusted earnings of $1.33 per share that beat the Zacks Consensus Estimate by 0.8%. The figure rose 8% year over year (up 6% after adjusting for forex).
Revenues of $846.3 million outpaced the Zacks Consensus Estimate by 1.9% and increased 10% year over year (up 8% after adjusting for forex). Continued momentum seen in security solutions as well as higher traffic on its intelligent Edge platform benefitted the top line.
Excluding Internet Platform Customers, revenues rose 9% year over year (up 8% after adjusting for forex) to $789 million. Revenues from Internet Platform Customers were $58 million, up 11% year over year.
U.S. revenues were $467 million, up 5% year over year. International revenues were $379 million, up 16% year over year (up 13% after adjusting for forex).
Continued Strength in Cloud Security Solutions
Cloud Security Solutions revenues were $296 million, up 24% year over year (up 23% after adjusting for forex). The top line was driven by robust demand for web security solutions as well as contribution from Asavie acquisition. The acquisition of Asavie contributed $8 million in the fourth quarter.
Amid increased DDoS attacks, Akamai is witnessing increased demand for its Prolexic services. Management stated that Bot Manager services also witnessed strong bookings in the fourth quarter.
Also, management stated that Page Integrity Manager security solution and Secure Web Getaway are seeing incremental adoption.
Further, Akamai announced that it concluded the acquisition of Asavie in the fourth quarter of 2020. Asavie specializes in Internet of Things (IoT), mobile and security solutions.
Revenues from CDN and other solutions of $550.2 million increased 3% on a year-over-year basis year (up 2% after adjusting for forex).
Web Division revenues increased 5% year over year (up 4% after adjusting for forex) to $438 million, owing to strong growth in the security business.
Media and Carrier Division revenues of $408 million rose 15% (up 14% after adjusting for forex) year over year. The segment’s top line was driven by higher traffic video streaming and gaming software downloads.
Non-GAAP cash gross margin contracted 200 basis points (bps) on a year-over-year basis to 76%.
Adjusted EBITDA margin of 43% expanded 200 bps on a year-over-year basis.
Cash operating expenses, as a percentage of revenues, contracted 380 bps from the year-ago quarter’s levels to 33.1%.
Non-GAAP operating margin expanded 100 bps on a year-over-year basis to 30%.
Balance Sheet & Cash Flow
As of Dec 31, 2020, Akamai’s cash and cash equivalents and marketable securities were $1.099 billion compared with $1.444 billion as of Sep 30, 2020.
The company generated cash flow from operations of $291.1 million compared with $402 million reported in the previous quarter. Free cash flow for the fourth quarter was $123.7 million compared with $173.2 million reported in third-quarter 2020.
In the reported quarter, Akamai repurchased 0.7 million shares for $72.5 million. The company has approximately $572 million remaining in its previously-announced share repurchase authorization.
2020 Numbers in Details
Akamai reported non-GAAP revenues of $3.198 billion in 2020, up 11% (up 11% after adjusting for forex) over 2019 tally. The Zacks Consensus Estimate was pegged at $3.18 billion.
Non-GAAP earnings per share was $5.22, up 16% (up 16% after adjusting for forex) from $4.49 reported for 2019.
Non-GAAP operating margin expanded 200 bps to 31% while non-GAAP adjusted EBITDA margin expanded 200 bps to 44%.
In 2020, Akamai generated cash flow from operations of $1.215 billion compared with $1.058 million in the previous year. Free cash flow for full year was $483.1 million compared with $496.2 million reported in 2019.
For 2020, the company repurchased 2 million shares worth $193.6 million.
For first-quarter 2021, Akamai expects revenues between $822 million and $836 million. This suggests 5-7% year-over-year growth in constant currency.
Notably, forex is expected to have a $4-million and $16-million positive impact on a sequential basis and year-over-year basis, respectively.
Cash gross margin is expected to be approximately 76% in the first quarter. Non-GAAP operating expenses are projected between $265 million and $270 million. EBITDA margin is expected to be nearly 44%.
Akamai expects non-GAAP operating margin of nearly 30% for the first quarter.
Non-GAAP earnings are envisioned in the range of $1.28-$1.31 per share.
For 2021, Akamai expects revenues between $3.37 billion and $3.42 billion that indicates year-over-year growth of 4-6% on constant currency basis. Notably, forex is expected to have a $45-million positive impact on revenues for 2021 on a year over year basis.
Akamai expects Non-GAAP operating margin to be 30% for 2021.
Non-GAAP earnings are expected between $5.33 and $5.46 per share.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
Currently, Akamai Technologies has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.
Estimates have been broadly 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.