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Factors to Note Before Akamai (AKAM) Reports Q3 Earnings

Zacks Equity Research
·5 min read

Akamai Technologies AKAM is set to report third-quarter 2020 results on Oct 27.

For the third quarter, Akamai expects revenues between $760 million and $785 million. The Zacks Consensus Estimate for quarterly revenues is pegged at $775.9 million, which indicates a rise of 9.3% from the year-ago quarter’s reported figure.

On a sequential basis, revenues are expected to decline 2.4%. In the second quarter conference, management cautioned that it expects ban of 59 Chinese apps (Akamai delivers traffic for roughly 30 of those) in India to lower third-quarter revenues by $15 million compared with second-quarter levels.

Non-GAAP earnings are expected in the range of $1.20-$1.24 per share. The consensus mark for earnings was unchanged at $1.23 in the past 30 days, which reflects year-over-year growth of 11.8%.

Akamai Technologies, Inc. Price and EPS Surprise

Akamai Technologies, Inc. Price and EPS Surprise
Akamai Technologies, Inc. Price and EPS Surprise

Akamai Technologies, Inc. price-eps-surprise | Akamai Technologies, Inc. Quote

Notably, the company has a trailing four-quarter positive earnings surprise of 8.81%, on average.

Let’s see how things have shaped up prior to this announcement.

Factors Likely to Have Influenced Q3

Akamai’s third-quarter 2020 performance is anticipated to have benefited from strong demand for its robust security solutions including application-layer firewall, and DDoS prevention.

Demand is being driven by the rise in cyber-attacks as hackers are taking advantage of the ongoing coronavirus pandemic to accelerate attacks on enterprises across all industries. Also, rising instances of credentials’ theft is expected to have driven demand for Akamai’s bot management offering.

Particularly, Page Integrity Manager Solution is expected to have witnessed incremental adoption, which in turn is anticipated to have driven Cloud Security Solutions revenues in the to-be-reported quarter. The threat detection solution prevents data infringement and credit card skimming amid growing number of security breaches.

Further, ongoing momentum for the company’s new Zero Trust enterprise security solutions is likely to have contributed to third-quarter revenues.

However, in the second quarter conference, management noted that it expects licensed sales in the cloud security segment to be relatively lower in the third quarter compared with second-quarter levels.

The Zacks Consensus Estimate for Cloud Security Solutions third-quarter revenues currently stands at $265 million, which suggests a rise of 22.7% on a year-over-year basis.

Akamai’s Media and Carrier division revenues is expected to have benefited from strong traffic on the company’s platform, owing to continued demand for OTT video services as well as increases in gaming activity during the third quarter of 2020.

Nonetheless, in the second quarter conference, management cautioned that it expects traffic to start moderating in the third quarter as shelter-in-place guideline ease across the globe and people start spending more time outside.

The Zacks Consensus Estimate for Media and Carrier Division’s third-quarter revenues currently stands at $366 million, which indicates a growth of 14.3% on a year-over-year basis.

However, Akamai’s Web Division revenues are likely to have been negatively impacted by continued weakness in the hospitality, travel and retail verticals. These sectors have been hit the hardest by the coronavirus outbreak.

Nevertheless, the Zacks Consensus Estimate for Web Division revenues for the third quarter is currently pegged at $409 million that indicates growth of 4.9% on a year-over-year basis.

Moreover, Internet Platform Customers’ third quarter revenue is expected to have been negatively impacted owing to renewal of two major customer contracts at new prices. Renewal at new prices is estimated to have negatively impacted Internet Platform Customers’ revenue by $4-$5 million, per management.

The Zacks Consensus Estimate for Internet Platform Customers revenues for the third quarter is currently pegged at $47.2 million that indicates growth of 6.8% on a year-over-year basis.

Nevertheless, increasing investments in product innovation along with rising bandwidth costs is likely to have exerted pressure on margins in the to-be-reported quarter.

Key Development in Q3

Akamai extended business relationship with AT&T through 2023. Per the renewed agreement terms, continued access to Akamai services will be provided to AT&T business customers.

What the Zacks Model Unveils

Our proven model doesn’t conclusively predict an earnings beat for Akamai this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.

Akamai has an Earnings ESP of 0.00% and a Zacks Rank #4 (Sell), which makes surprise prediction difficult. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some stocks you may consider as our proven model shows that these have the right mix of elements to beat estimates this time:

Avnet AVT has an Earnings ESP of +39.13% and it currently sports a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Fortinet FTNT has an Earnings ESP of +0.6% and it presently flaunts a Zacks Rank of 2.

Activision Blizzard ATVI currently has an Earnings ESP of +2.2% and a Zacks Rank of 2.

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