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Akamai Technologies (AKAM) Up 2.2% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Akamai Technologies (AKAM). Shares have added about 2.2% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Akamai Technologies due for a pullback? 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 drivers.

Akamai Q1 Earnings and Revenues Top Estimates

Akamai Technologies, Inc reported non-GAAP first-quarter 2020 earnings of $1.20 per share which surged 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 and lower tax rate.

Revenues of $764.3 million improved 8% from the year-ago quarter (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 improved 9% year over year (up 10% adjusted for foreign exchange) to $719.6 million.

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

Solid Growth in Cloud Security Solutions

Cloud Security Solutions revenues were $240.3 million, surging 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, the Akamai’s next-gen Zero Trust enterprise security solutions witnessed robust adoption during the quarter.

Management remains 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 strengthen due to the outbreak as attackers start taking advantage of the pandemic.

Revenues from CDN and other solutions of $524 million decreased 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, primarily on account of strong growth in the security business.

Media and Carrier Division revenues of $358.3 million grew 8% (up 9% adjusted for foreign exchange) from the year-ago quarter. 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 were $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 negatively impacted 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 to 34%.

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

Balance Sheet & Cash Flow

As of Mar 31, 2020, Akamai’s cash and cash equivalents (and total marketable securities) were $1.249 billion as compared with $1.537 billion as of Dec 31, 2019.

Akamai had total debt of $2.3 billion as of Mar 31, 2020, unchanged from the previous quarter.

The company generated cash flow from operations of $223.2 million as 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 envisions revenues between $752 million and $778 million.

Non-GAAP earnings are envisioned in the range of $1.18 to $1.24 per share.

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

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

ADVERTISEMENT

VGM Scores

Currently, Akamai Technologies has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been 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.


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