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Factors Expected to Influence Akamai's (AKAM) Q4 Earnings

Zacks Equity Research

Akamai Technologies, Inc. AKAM is scheduled to release fourth-quarter 2018 results on Feb 12. Notably, the company has surpassed the Zacks Consensus Estimate in the trailing four quarters, recording average beat of 10.2%.

Q3 at a Glance

Akamai delivered non-GAAP third-quarter 2018 earnings of 94 cents per share beating the Zacks Consensus Estimate of 83 cents. The figure also surged 51.6% on a year-over-year basis.

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

Revenues of $670 million outpaced the Zacks Consensus Estimate of $663 million and increased 7% from the year-ago quarter (up 8% adjusted for foreign exchange). The top line benefited from robust performance of security products and growth in Media and Carrier Division.

Guidance & Estimates

For fourth-quarter 2018, Akamai envisions revenues between $692 million and $709 million (mid-point at $700.5 million). Management anticipates unfavorable foreign exchange and seasonal summer traffic care to affect revenues. The Zacks Consensus Estimate is pegged at $703.7 million, representing year-over-year growth of 6.1%.

Non-GAAP earnings are envisioned in the range of 97 cents to $1.03 per share. The Zacks Consensus Estimate is pegged at $1.00 per share, representing year-over-year growth of 44.9%.

Akamai had updated guidance for 2018 during the third quarter. Owing to currency headwinds, the company expects full-year 2018 revenues between $2.693 billion and $2.71 billion as compared with the previous guidance in the range of $2.68 billion and $2.71 billion. The Zacks Consensus Estimate is pegged at $2.7 billion.

Non-GAAP earnings are now projected in the range of $3.53 per share to $3.59 per share, up from the previously updated outlook of $3.26 per share to $3.38 per share. The Zacks Consensus Estimate is pegged at $3.56 per share.

Shares of Akamai have returned 3.8% year over year, against the industry’s decline of 14.3%.

Let’s see how things are shaping up prior to this announcement.

Factors Likely to Influence Q4 Results

Akamai is likely to continue witnessing high level of network traffic on its platform, which is a major tailwind

Solid demand for Kona Site Defender, Bot Manager and Prolexic Solutions are anticipated to drive Cloud Security Solutions revenues. The traction gained by Enterprise Application Access and Enterprise Threat Protector is also a positive.

In fact in the third quarter of 2018, Cloud Security Solutions revenues (which represented 25% of total revenues) came in at $169 million, surging almost 37% year over year (up 39% adjusted for foreign exchange). The Zacks Consensus Estimate for the same is pegged at $178 million.

Management remains optimistic over the growing influence of its security solutions during the last reported quarter among media customers, in particular. Notably, Akamai is one of the largest cloud security providers. It exited the last reported quarter at a run-rate of around $700 million for security business.

Robust adoption of Akamai’s Image Manager, mPulse and Digital Performance Management solutions are expected to boost Web Division revenues growth.

Synergies from Nominum and initiatives to improve traffic growth are likely to aid revenue growth in Media and Carrier Division.

Traffic growth was especially strong in OTT and gaming sectors. Management also remains elated on the recent record download of Epic Games’ new game, Fortnite.  The game registered traffic of over 22 terabits per second on the company’s platform.

Akamai also inked a deal to buy Janrain in an all-cash transaction. The company’s focus on enhancing security solutions portfolio amid growing data traffic is in sync with the latest agreement.

The company is optimistic about benefiting from the integration of Janrain’s Identity Cloud with its Intelligent Edge Platform. The integration will enable Akamai to provide enhanced secure services to its CIAM customers, in turn bolstering engagement. The incremental revenues generated as a result, are anticipated to favor top-line growth.

Expansion of the security-product portfolio is anticipated to lower dependence on media delivery solutions. Further, rapid growth in security is expected to offset loss of large customers in the CDN space.

However, declining revenue contribution from large customers in the Internet Platform group remains a concern.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Akamaihas a Zacks Rank #3 and an Earnings ESP of +3.74%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks with Favorable Combination

Here are a few stocks that are worth considering as our model shows that these have the right combination of elements to deliver an earnings beat in the upcoming releases.

Portland General Electric Company POR has an Earnings ESP of +4.19% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lumentum Holdings Inc. LITE has an Earnings ESP of +0.19% and a Zacks Rank #3.

Vertex Pharmaceuticals Incorporated VRTX has an Earnings ESP of +7.25% and a Zacks Rank #3.

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