Why Akamai (AKAM) Stock Is Trading Lower Today
What Happened:
Shares of web content delivery and security company Akamai (NASDAQ:AKAM) fell 10.4% in the morning session after the company reported fourth-quarter results with revenue falling below Wall Street's expectations. Revenue guidance for the next quarter also missed consensus estimates, likely raising questions about the company's growth outlook. Baked into the forward guidance are expectations for a revenue decline in the first half of the year as 7 out of 10 CDN (content delivery network) customers renew their contract. These renewals tend to drive an initial revenue decline before growth picks up as traffic accelerates over time. Overall, this was a weaker quarter for the company.
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What is the market telling us:
Akamai's shares are not very volatile than the market average and over the last year have had only 3 moves greater than 5%. But moves this big are very rare even for Akamai and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was 6 months ago, when the stock gained 10.1% on the news that the company reported a "beat and raise" quarter. Second quarter results beat analysts' expectations for revenue and earnings per share. The topline growth benefitted from strong demand for security and segmentation solutions, with the security segment growing by 14% year on year. Notably, demand for Guardicore (segmentation solution) grew 60% year on year and is expected to reach $100M run rate by Q3'23.
Looking ahead, the company raised its revenue and EPS guidance for the full year. The improved guidance partly benefitted from the announced partnership with channel partner, WWT to sell Akamai's security solutions. Overall, it was a stronger quarter for the company despite the challenges faced by tech companies this quarter due to a tougher macro environment.
Akamai is down 1.3% since the beginning of the year, and at $115.23 per share it is trading 10.2% below its 52-week high of $128.32 from February 2024. Investors who bought $1,000 worth of Akamai's shares 5 years ago would now be looking at an investment worth $1,630.
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