Akamai Technologies, Inc. (AKAM) on Q1 2021 Results - Earnings Call Transcript

Operator: Good day and thank you for standing by. Welcome to the Akamai Technologies First Quarter 2021 Earnings Call. At this time, all participant lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, Tom Barth, Head of Investor Relations. Thank you Please go ahead, Sir. Tom Barth: Thank you, operator. Good afternoon everyone and thank you for joining Akamai's first quarter 2021 earnings conference call. Speaking today will be Tom Leighton, Akamai's Chief Executive Officer; and Ed McGowan, Akamai's Chief Financial Officer. Tom Leighton: Thanks Tom. And thank you all for joining us today. I'm pleased to report that Akamai delivered excellent results in the first quarter. Q1 revenue was $843 million, up 10% year-over-year and up 8% in constant currency. This strong result was driven by the continued rapid growth of our security business, accelerated growth in our edge applications business and continued high traffic levels on our intelligent edge platform. Non-GAAP operating margin in Q1 was 31% and Q1 non-GAAP EPS was $1.38 per diluted share, up 15% year-over-year and up 11% in constant currency. With a strong start to 2021, we're proud that Akamai has continued to enable and to protect, remote work, homeschooling, ecommerce and online entertainment for billions of people around the world amidst very challenging circumstances. Our security solutions portfolio performed especially well in Q1 generating revenue of $310 million, up 29% year-over-year and up 27% in constant currency. A very strong growth was experienced across most of our security products, including our new Page Integrity Manager solution. Page Integrity Manager helps enterprises defend against malware and third-party software and applications. Customers that adopted Page Integrity Manager in Q1 included Maersk, the world's largest container shipping operator, and Groupon, the global e commerce marketplace. Maersk uses more than 4000 scripts, half of which are third party scripts to drive millions of dollars of online business every hour. Managing this complex and dynamic environment had become an increasingly difficult security challenge for Maersk and so they now use Page Integrity Manager to improve visibility into security threats and to prevent the loss of critical data. Ed McGowan: Thank you, Tom. Before I provide additional details on our Q1 performance, I'd like to remind everyone that as a result of the reorganization we announced last quarter, we've refocused the company from a vertical aligned divisional structure to a product-oriented lens. I will therefore be focusing my discussion today on our security technology group and our edge technology group. The security group, as you might imagine, encompasses all of our security solution. The edge group includes our media delivery, and web performance CDN business, along with our edge compute solutions. Operator: Our first question comes from Colby Synesael with Cowen. Your line is now open. Unidentified Analyst: Hi, this is Michael on for Colby. Two questions, if I may. First, can you give us an update on your M&A pipeline for security and how the number of opportunities you're seeing compares to this time last year? And secondly one of your CDN peers flagged that they saw loss of market share due to performance. Is there anything that you can flag related to market share gains, or potentially losses during the quarter? That'd be helpful. Thank you. Tom Leighton: Sure, I would say the M&A pipeline is comparable to last year. There's a lot of companies for sale and the pricing for typical companies in the security area remains very high. And I think in many cases unrealistic. So I think overall, the dynamics there are pretty comparable to where they were last year. As you know, Akamai is always looking for opportunities. We're also very disciplined in terms of actually what we end up buying. In terms of CDN market share the very large media companies do compare the CDN vendors in terms of their traffic share. And if a vendor is doing better than others, they tend to get more share. And that's why Akamai has such a large share when it comes to delivery of media traffic. And if a vendor has outages or is performing poorly, which we see a fair amount out there among our competition, they can lose share. And so that's a very typical dynamic, nothing new there. It's been that way for several years. And that's why Akamai such an effort to have the world's best performance hence why we have so much of the traffic. Unidentified Analyst: Perfect. Thank you very much. Operator: Our next question comes from James Fish with Piper Sandler. James Fish: Hey, guys, congrats on the quarter. First, can you just give us more color behind the media CDN business in terms of especially the gaming verticals specifically? Just really trying to understand how fast either revenue or traffic from gaming itself is growing and what the exposure to gaming overall, given what we're seeing with the console cycle, as well. And then normally Ed, you don't typically raising Q - following Q1, I guess what gives you the confidence at this point of the year versus normal? Ed McGowan: Yeah. Hey Jim, so first, I'll take the first question, which was around the media, the gaming growth in particular. So we don't break out specific growth rates. But I can say that gaming in particular was one of the stronger verticals in terms of growth, very pleased with what we saw. And the other thing is, I'd say, the names of the number of customers that we saw growing, it wasn't just your normal handful of gaming customers. So we saw some benefit from the continuation of the gaming console releases we saw in Q4, but we also saw a lot of publishers have some pretty significant releases during the quarter. So in general, it's a really good gaming quarter. We're off to a pretty good start here in Q2. And as you know, this the gaming release can be a bit seasonal, but so far, it's been a pretty good start for the year. Like I said, I'm pretty happy with the performance across many different customers. In terms of guidance, yeah, we just started off having a great year. Traffic has been very strong. You saw the security performance, it's a little bit - we get a lot of exposure on the FX side. So having one quarter down and having the first month of the quarter of the - or second quarter down, gives a little bit more confidence going into the year. So we felt that we had enough visibility at this point to raise guidance. As you know, the second half of the year is always a little bit more challenging where Q3 is embassy summer seasonality, we didn't see that last year, because of the pandemic, we'll probably see a little bit of that on the media side. And then Q4 obviously, tends to be our strongest seasonal quarter where you have strong ecommerce and strong media. So we're feeling pretty confident at this point. So we thought it was appropriate to take the guidance up a touch. James Fish: Thanks, congrats again. Operator: Our next question comes from Keith Weiss with Morgan Stanley. Keith Weiss: Excellent, thank you guys for taking the question and very nice quarter. On the last question and this kind of increased confidence in the year, is it more on the like CDN side or more on the security side, because it does sound like you feel good about some of those new products ramping pretty nicely on the security portfolio, and you're talking about the low 20s growth for the year. So I was hoping you could clarify that and then have a follow up question on margins if we have time. Tom Leighton: Yeah, we had a very strong start to the year. It's great to see the security business growing at 29%. And as we talked about, it's really across the board. It's not a single product doing well, but just strength everywhere in security. And when you see that kind of performance and we look ahead to the back part of the year, we are confident that we're going to do better than we had thought coming into the year, just great performance. There's also good performance on the CDN side, happy to see that up 2%. As I'd talked about you do worry about FX there and what can happen, but on balance business very strong and off to a great start. Ed, do you want to add any color to that? Ed McGowan: No, I think you covered it, Tom. I think seeing the strength of security to be able to take that up a touch and last quarter we were in the 18% to 20% range. Now we're in the low 20s. And then on the CDN side, we do have some tougher compares. But we're seeing really strong traffic and not seeing any decrease from what we've seen over the last year. So we're feeling pretty good about that. Keith Weiss: Got it, that sounds great. And then on the margin side of the equation, we're past the peak in terms of CapEx, sort of spending or CapEx intensity. But it's going to take some time for that to flow through to gross margins, so there's probably more like a calendar '22 impact. But you did come in a little bit ahead on operating margins this quarter and next quarter, we're looking for 31%. The expectation that you're going to try to sort of take that up with increased investment in the business or is there potential for kind of more flow through upside into better margins for the year. Ed McGowan: Yeah. So Keith, two things to think about there, the first one is, we have our - biggest expense lies our payroll, and we have our annual, what we call our merit increase cycle that kicks in July 1. So you'll see a little bit of increase in our operating expenses for carrying our current employees, but we will be investing in security. So we plan - we've got some planned investments in the back half of the year. But we took the guidance range up from what we said approximately 30 last time to 31. So running a 31 here would be to touch under and in Q3 as we go through our merit cycle and then Q4 is always a little bit of a wild card in terms of how strong the revenue performance is. But we want to make sure we're investing back in the business, we see really good growth in security, but also in our edge applications business as well. Keith Weiss: Is there a potential for gross margins to start to become a little bit of a tailwind into the back half of the year? Ed McGowan: Yeah, I mean, you got to keep in mind, the mix there. Overtime, I think, as you get into - as we talked about, in the Investor Relations Day, where you saw our security margins, gross margins are higher, you've got your media margins are lower. So it really is a mix. And while we're exceeding our plan so far on security, it's going to take a bit for that to really manifest itself in higher gross margins. You see we get a bigger percentage of the business coming from security. And if you look at the part of the business in media that's growing primarily the high-volume video, high volume media, that tends to be where you have the most competition and pricing pressure. So you kind of balance those two out and you kind of keep the margin - gross margins, flattish here for the year and then I'd say overtime there's a chance that we could see some expansion there, but we're not going to call that out right now. Keith Weiss: Got it. Excellent. Thank you so much for the color guys. Operator: Our next question comes from Sterling Auty with JP Morgan. Unidentified Analyst: Hi, this is Rajat on for Sterling Auty. Can you give colors on the organic growth in the security for the quarter? Ed McGowan: Yeah. Sure. This is Ed. We had about $10 million of contribution from Asavie, which would be about four percentage points. I would say though, that when we acquired Asavie, our plan was to do roughly 30 million in revenue in the first year. And we're obviously exceeding that. So we've been able to take that asset and really start to scale it. So while it's technically inorganic, I'd say we deserve some credit for being able to significantly accelerate that growth rate. So you back out the 4%, you'd be - it's at 29 to be 25 and 22% on a constant currency basis. Unidentified Analyst: Okay, and then just a follow-up on that, like the gross margins in sales and marketing are down seasonally, so can you give colors on that also? Ed McGowan: Yeah, so on the sales and marketing, what you'll find is Q4 tends to be our highest quarter for sales and marketing expenses where you have - especially last year when we were exceeding our plan to get into accelerator, so you get a reset on the compensation and you'll see it spike up again in Q4 of this year. Unidentified Analyst: Cool and on gross margins. Ed McGowan: Yeah, so gross margins were flat quarter-over-quarter. That's in line with what we expected. So really, there's nothing to call out there. Unidentified Analyst: Cool, thanks. Operator: Our next question comes from Tim Horan with Oppenheimer. Tim Horan: Thanks guys, great, security quarter. Was there any one-time items, any license deals or anything else that would suggest why the growth has slowed down so much after an acceleration like this? And can you comment on how enterprise security is doing? Is it meeting your expectations at this point? Ed McGowan: Yeah. Sure. Tim, I'll take the first one and Tom if you want to talk about enterprise afterwards. So yeah, there's - there was really nothing to call out in terms of license revenue. But I'm glad you reminded me because when you guys are building your model, if you remember last year in Q2, we did have an unusually strong license quarter. So as you kind of build your models and look at your competitors, just remember last year, we had 7 million of license revenue in Q2. We don't expect that again in Q2 of this year. And in Q1, there was really nothing unusual. As Tom said, there's really strength across many different products in security. It's been easy for us to just call out one thing, but the good news for us as we've seen strength everywhere. And Tom I don't know if you want to talk a bit about the enterprise. Tom Leighton: Yeah, the access segment performed very well. As we noted, we're now at $100 million revenue run rate. So it's great to start the year in Q1 there, very strong growth, over 170% over last year. Now of course that includes Asavie. If you take that out, organic growth still over 60% in that segment, so very pleased. And as Ed noted, we're pretty excited about the Asavie acquisition, especially as you get the emergence of 5G and you get IoT applications, but the ability to secure enterprise devices across the board, I think is very exciting for the future. And we're really in a unique position to do that. And we have great relationships with the carrier. So we think we'll really be able to scale that business to a global basis. Tim Horan: And just following up on the M&A question, with new security products, do you think you can shift more to internal development from your own R&D as opposed to acquisitions? Or how has that been trending the last few years? Tom Leighton: I think it's a good healthy mix. As you know, we've made several acquisitions, mostly tech tuck ins, occasionally something a little bit larger. And we do a lot of organic investment in research and development, very active, they're very innovative. Maybe a good example is Page Integrity Manager, which we launched last year, and doing really well in the marketplace. And we did - that was a blend of a tech tuck in about seven to 10 employees in the company we acquired and a lot of organic development at the same time to make a very successful product quickly bring it to market and very strong adoption in early days. Tim Horan: Thank you. Operator: Our next question comes from Alex Henderson with Needham. Mike Cikos: Hey, guys. Here's Mike Cikos on the line here for Alex Henderson. Could you comment on the security growth you're experiencing? I'm just trying to, I guess, think about this demand and the increased expectations you guys have now. Is any of this at all related to, I guess budges finally coming to market following the headlines that we saw earlier in the year round SolarWinds and the Microsoft Exchange Server hack? And then there's the second comment on that would be the improved outlook that you have for security, is it also expected to be broad based on a go forward basis? Tom Leighton: Yeah, let me take the first question there. And that's a yeah, really good question. The attack landscape is just breathtaking. You think you've seen it all and then next week, you read the next headline, the in the attackers are very powerful. You have nation states, large scale, organized crime just - and what they're doing is pretty scary. Now, the great news for Akamai and our customers is that we have solutions that can protect enterprises for a large majority of those attacks. A great example is the recent Exchange Server hack, where many 1000s of enterprises got hacked, lost their emails, which is really bad. Akamai, our IT department was running an Exchange Server, just like all those other companies. And the difference is we didn't get hacked because we use our own enterprise security solutions. And we had enterprise application access, sitting in front of our Exchange Server. And that meant that the vulnerability couldn't be exploited. Because the employee doesn't just get to go contact the Exchange Server they did, then somebody can come in and before you're authenticated by the Exchange Server, you can exploit the vulnerability. Instead, they got to get to Akamai –they come to Akamai's enterprise application access product, we authenticate them. And if it's a bad guy outside trying to do something, no way they get in and not only that, they don't get directly to the Exchange Server, because they have to pass through our security. So if they're trying to do bad things, we'll stop it. And it's all about our approach to zero trust. And yes, we can protect enterprises from these sorts of things. And even in zero-day attacks, we didn't know about the exchange hack before other enterprises or Microsoft did, and yet we were protected at zero-day because of our solutions. So I think as the attacks increase that does increase awareness and that does help drive our security business. And I see no end to the attacks coming. There's more on the way and we're in a great position to be able to help the leading enterprises stay safe against those attacks. Mike Cikos: Great and then just following up that broad based strength that we're talking to Q1, is that expected on a go forward basis with the updated outlook we have today? Tom Leighton: Yes, we're strong across the board and we're anticipating that through the rest of this year. And of course at our Investor Day, we talked about the three-to-five-year CAGR goals and as you go back to that material, you'll see it's pretty strong across the board there in terms of our anticipated growth over the longer term. Mike Cikos: Great, thank you. Operator: Our next question comes from James Breen with William Blair. James Breen: Thanks. Thanks for taking the question. Just wondering if you can give us some color on the US versus the international mix? It seemed like US had a pretty good acceleration on a year-over-year basis this quarter. Is this pandemic driven? Or is it more around the products that's getting sold? And then just secondly, in the margin for Ed, EBITDA margins 45%, you've guided to that to the next quarter. Given the business mix now, is that sort of the starting point in terms of margin structure given CapEx coming down and investments et cetera? Thanks. Ed McGowan: Yeah. Hey, Jim. So on the - I'll take the EBITDA margin question first. Yeah, so 45 is a good spot for this quarter. Obviously, we've got a little bit of expense coming in Q3. So 44, 45-ish, but I think you're thinking about it in the right range. On the US versus international, yeah, US was pretty strong. We've been having pretty decent US growth. If you remember, go back a year or so, a little over a year ago, we were kind of flattish and we started to turn things around there. Lot of it has to do with the strength that we're seeing in media, a lot of the companies are in the US. But in terms of international still having very strong growth internationally, we do come up against some tougher compares. There's pretty strong media business outside the US. So you'll see some tougher compares on the media delivery side, and as I called out from an international perspective, there's - we're still laughing that $15 million of lost revenue associated with the banned apps in India. James Breen: And then, just one other question, are there any sectors that you're seeing that were particularly hit hard by the pandemics that are maybe starting to come back a little bit more as the vaccine has gotten rolled out? Thanks. Ed McGowan: Yeah, I would - yeah, it's a good question, Jim. So I would say the hotel and travel is probably stabilizing a little bit, I wouldn't say we're in the growth phase yet. Maybe starting to see some early signs, it's probably still few quarters before we start to see that business return to a growth engine for us. On retail, it's still a mixed bag. You've got some that are doing well, some that aren't doing well. And just keep in mind that that's 20% of our total business, 40% of your old legacy web business. But it's - I'd say we're optimistic, but still ways to go before we declare a victory there. James Breen: Great, thanks. Operator: Our next question comes from Brandon Nispel with KeyBanc. Brandon Nispel: Great, two questions for Ed and one for Tom. Ed, could you just outline how we should be thinking about working capital for the year? And then for the full year '21, what's embedded in your outlook for FX versus your prior expectations? And for Tom, how should we think about the growth in edge applications sequentially as we move throughout the year? I think you mentioned it was about $45 million this quarter. Thanks. Ed McGowan: Hey, Brandon, yeah, I'll take the second one first in terms of FX. So the FX rates we do is at the beginning of the quarter, we sort of take a look at where the FX rates are assuming that's going to stay for the balance of the year. In terms of how it was relative to the beginning of the last quarter, we gave guidance, some currencies are up, some are down that's roughly somewhat in line. I talked about in the prepared remarks that FX sort of came in as expected. We get a little bit of a headwind here quarter-over-quarter, mostly with this in the yen. But I would say just keep an eye on it though. It's just - if you kind of just step back and do the math, we get a little over a $1 billion worth of non-USs denominated revenue. So to the extent that you get a 1%, swing that can swing to $10 million on an annual basis and the major currencies for us a euro, yen, pound and then it kind of drops off from there and the other currencies aren't as impactful. But those are the three to keep an eye on. And then working capital, I'd say, like any other year, you'll see nothing unusual in terms of working capital. This year in Q1, you see us, from a cash flow perspective, we pay out our bonuses early in Q1 and you see cash - working capital, pick up a touch. To call out in terms of collections, we've actually been fantastic. Nothing on the payable side, it's unusual. As we've talked about CapEx is already hit its high point, so nothing really unusual to call on working capital. Tom Leighton: Yeah, and in terms of the edge applications question, you're right about 45 million in Q1. We don't guide separately on an annual basis for that. You just saw over 30% growth in Q1 and at IR Day we did talk about into the three-to-five-year CAGR. Goal there is over 30%. So at a high level, I'd expect to see us continue with very strong growth through the rest of the year in edge applications. Brandon Nispel: That thanks for taking the questions. Operator: Our next question comes from Robert Majek with Raymond James. Robert Majek: Great, thanks. Just two questions for me, one, good to see the guide up on the security business to a low 20s rate, but you did just report security growth at 29%. So just how should we read into that? Why should we expect that growth rate to decelerate materially? And then two, just what are you seeing on CDN per unit pricing? Is the level of price decline getting more steeper than usual as larger customers renegotiate their now larger CDN contracts in a COVID boosted traffic environment? Ed McGowan: Yeah, so I'll take both of those. So on the low 20s, the way to think about it is - I just called out when Tim asked the question about license revenue. You got a tougher compare in Q2. With 7 million of license revenue, we don't anticipate repeating in Q2. You also have the Asavie acquisition that will anniversary in Q4. So when you take those two factors into consideration, you'll see the growth rate come down a touch as those sort of work themselves out. On the CDN pricing environment, nothing really to call out there, I've been in this business for a little over 20 years and I've sort of gotten numb to pricing at this point and I don't see anything that is unusual. And also, if there was anything in our top - we in our Earnings Day - Analyst Day we called out our top eight customers, anyone who's over 1% as a metric. And if there's anything in that group of customers worth calling out, I'd certainly do that. And there's really nothing at this point to call out. And as far as renewals are going, we do a pretty good job of anticipating what to expect and it hasn't been negative surprises so far. Thanks Rob. Operator: Our next question comes from Jeff Van Rhee with Craig Hallum. Unidentified Analyst: Hey, guys. This is Rudy on for Jeff. Thanks for taking my questions. I know in security you've said there's broad based strength in the quarter expect that to continue. Were there any products in there maybe one or two that were just a little bit weaker or saw some challenges or slowdowns, just anything you'd call out? Tom Leighton: I don't think there's anything to call out there, just really was outstanding quarter across the board. We're very pleased with how the security business is doing. Unidentified Analyst: Got it and then the sustainability goals by 2030, is there any boundary you can put around maybe how much expense for those investments there you're factoring in for 21? Or just what the expected impact of margins might be from investments there may be on the longer term. Tom Leighton: Yeah, so, I'll tell the team went through this and there's really not any significant expenses that we anticipate for several years. And even then, the cost that the team has rolled up is not all that significant. We've actually been able to do some pretty creative deals with certain projects on renewable energy that have worked out to be - from a pricing perspective, and no overall net economics have been neutral to even favorable in some cases, so nothing really there to note. Team's doing a fabulous job on it. And if it's - if time goes on, if there's anything we need to call out, we'll certainly let you know. Unidentified Analyst: Got it. Great. Thank you. That's it for me. Operator: Our next question comes from Charlie Ehrlich with Baird Charlie Ehrlich: Hey, thanks for taking the question. It's Chuck Ehrlich on for Will Power. I was hoping to dig in a little bit more into the legacy web division. Can you maybe talk a little bit more about maybe the puts and takes in that segment and the declines we're seeing there? And then what it might take to stabilize that segment? Tom Leighton: Yeah, so I would say similar to what we've talked about in the past, right. You've got, obviously strong security growth, you've got from a verticals perspective, you have two verticals, retail and travel, which make up 40% of the legacy web division, vertical division, excuse me. And we're still, like I said, a few questions ago, we're not quite out of the woods there yet. And we're starting to see some stability, but we're not seeing that type of growth yet there. So it's going to take a bit for that to recover. We're doing a nice job of dealing with certain pricing pressure in those verticals with opening up other shares of the wallet, whether it's additional security products or really starting to see a lot of interest in our edge computing and edge applications business as well. So we'll see dollars potentially ship delivery into that category as we go through pricing negotiations, but that's pretty normal. And once we start to see probably in a couple of quarters, hopefully the travel and retail business get back to normal if these vaccines hold and life returns to normal, hopefully start to see that segment of the business growing again. Charlie Ehrlich: Okay. And then on the internet platform customers, we're continuing to see some growth there, which is great. Is there anything specific where that's driving that growth and what we expect for the rest of the year from that cohort? Tom Leighton: Yeah, so it's becoming less impactful. So that's why we're kind of going away from that metric. You didn't hear me talk about in our prepared remarks. I think years ago, people were concerned that that may go to zero. And we talked a couple of years ago about stabilizing that and getting it back to growth. And the team has just done a phenomenal job. So I first tip my hat to the team that's managing those accounts. They've done a nice job of finding areas for us to add value to incredibly innovative technology companies that have their own CDN. And we found a nice spot to pick up this, whether it's adding security or delivering traffic for video and gaming for big scale events, or for live video or even on demand video, we're just finding a nice niche there and that continues to grow. It's up about a $1 million quarter over quarter, very impressive growth rate. I'd say stability is probably a good way to think about that going through the year. There's always upside with these accounts and team's identifying new areas of opportunity all the time. So very pleased with where we are with those customers and expect to see probably similar numbers, what you're seeing now down a little bit, quarter to quarter, depending on certain things that are going on in those accounts. Charlie Ehrlich: Got it. Thank you. Operator: Our next question comes from Alex Henderson with Needham. Mike Cikos: Hey, guys, Mike Chico's here again and thanks for getting me on the line. I did just want to follow up. Just looking at my model versus where you guys came in the sales and marketing expense. This quarter was much slower than what we had anticipated, even if I'm removing the accelerators from 4Q and even just looking at Q1 '21 versus Q1 '20, the amount of leverage in the model. Can you talk to how we should expect the sales and marketing to play out over the course of the years? Are there savings being realized from the realigned division? Or the reorganizations you guys had talked to earlier this year? Tom Leighton: Yeah, that's a good point, Mike. So as part of the reorganization, right, some shift between sales and marketing, research and development, a few million bucks, if I remember correctly. And then there was some savings as we moved from the divisional model to one as there was some synergy mostly at the management level. So you'll see some of those costs go away as well. Mike Cikos: Great, thank you for clarifying that. Tom Barth: Okay, well, thank you everyone. In closing, we will be presenting at several investor conferences and roadshows throughout the rest of the second quarter. Details of these can be found in the investor relations section at akamai.com. Thank you for joining us. And all of us here at Akamai wish you continued good health to yourself as well as to your families. Have a nice evening. Tom Leighton: Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
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Akamai Technologies Maintains Bullish Outlook on Compute Business Despite Delivery Segment Concerns

Akamai Technologies (NASDAQ:AKAM) received an increased price target of $120, up from $115, with a Buy rating maintained by DA Davidson.

In a recent investor call, Akamai's CFO Ed McGowan and Head of IR Mark Stoutenberg provided additional insights, expressing strong confidence in the company's Compute business, which is expected to see further growth acceleration, particularly as the enterprise segment continues to expand.

While there were conflicting reports about market share shifts in the Delivery segment, overall traffic growth remains weak. However, management expressed optimism about the growth potential of Noname, a key area of focus, and highlighted that operating margin expansion into the low 30% range is a top priority.

Akamai Technologies' Impressive Q2 Results

  • Akamai Technologies (NASDAQ:AKAM) reported a significant uptick in its stock price following impressive second-quarter results.
  • The company announced a 15% increase in security revenue to $498.7 million and a 23% jump in compute revenue to $151.5 million.
  • Akamai has revised its full-year adjusted EPS guidance upwards, reflecting a positive outlook and continued demand for its products.

Akamai Technologies (NASDAQ:AKAM) recently made headlines with its impressive second-quarter results, which not only exceeded expectations but also led to a significant uptick in its stock price. As a leading provider of security and cloud computing products, Akamai's financial performance is closely watched by investors and industry analysts alike. The company's shares surged by 10% to $100.94, positioning it among the top gainers in the S&P 500. This surge was a direct response to the company's announcement of a 15% increase in security revenue, reaching $498.7 million, and a 23% jump in compute revenue to $151.5 million. However, it's important to note that delivery revenue saw a decline of 13% to $329.4 million.

The financial metrics provided by Akamai further underscore the company's strong quarter. With adjusted earnings per share (EPS) at $1.58 and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) at $408.9 million, Akamai not only surpassed analyst expectations but also showcased its robust financial health. The total revenue saw a 5% year-over-year increase to $979.6 million, which is a testament to the company's ability to grow its core business segments effectively.

In light of these strong results, Akamai has confidently revised its full-year adjusted EPS guidance upwards to between $6.34 and $6.47, from the previously forecasted range of $6.20 to $6.40. This adjustment reflects the company's positive outlook and the anticipated continued demand for its security and cloud computing products. CEO Tom Leighton's remarks about the quarter's achievements further highlight the strong customer interest in Akamai's offerings and the successful launch of new cloud services, indicating a strategic direction that aligns with market demands and emerging technology trends.

Despite the positive momentum, it's important to recognize that Akamai's shares have experienced some volatility, with a 15% decline for the year. This suggests that while the company is making significant strides in its operational and financial performance, external factors and market dynamics continue to influence its stock price. Investors and stakeholders will likely keep a close eye on Akamai's future performance, especially in the rapidly evolving sectors of security and cloud computing, where competition is fierce and innovation is key to maintaining a competitive edge.

Akamai Technologies Earns an Upgrade at Baird

Baird analysts upgraded Akamai Technologies (NASDAQ:AKAM) to Outperform from Neutral, raising the price target to $135 from $128. The firm’s upgrade stems from optimism around Akamai's expanding security business, which is anticipated to represent 50% of the company's total revenue in 2024, up from 39% three years earlier.

Highlighting the current valuation's significant discount compared to its historical five- and ten-year averages, the analysts see a compelling risk/reward scenario for investors. Despite the ongoing challenges in the delivery segment, the analysts believe this is already well accounted for in the market's expectations, and see potential upside in the compute segment by 2025 and beyond, which currently holds low investor expectations.

Akamai Technologies Drops 7% Following Q4 Results

Akamai Technologies (NASDAQ:AKAM) experienced a 7% decrease in its share price intra-day today, following the company's release of fourth-quarter results that fell short of revenue expectations and provided a cautious outlook for the first quarter of 2024.

The cloud computing firm reported earnings per share (EPS) of $1.69, beating the consensus predictions of $1.60. However, its revenue for the quarter was $995 million, slightly below the expected $999.09 million.

Within its revenue breakdown, Akamai's security services contributed $471.0 million, an 18% increase year-over-year but just below the forecast of $473.3 million. Its delivery services saw a downturn, earning $389.0 million, a 6.3% drop from the previous year and less than the $392.8 million forecast. On a positive note, compute services reported a 20% year-over-year growth to $135.0 million, exceeding the anticipated $132.7 million.

For the upcoming first quarter of 2024, Akamai anticipates its EPS to range between $1.59 and $1.64, compared to the analyst expectation of $1.59. The company expects revenue to be in the range of $980 million to $1 billion, compared to the analyst projection of $993.4 million.

Akamai Stock Jumps 8% on Solid Beat & Raise

Akamai Technologies (NASDAQ:AKAM) shares jumped more than 8% on Wednesday after the company reported its Q1 earnings results, with EPS of $1.40 coming in better than the Street estimate of $1.32. Revenue was $916 million, beating the Street estimate of $910.51 million, driven by the Delivery upside, mostly offset by another Security miss.

For Q2/23, the company expects EPS in the range of $1.38-$1.42, compared to the Street estimate of $1.35, and revenue in the range of $923-$937 million, compared to the Street estimate of $919 million.

For the full year, the company anticipates EPS of $5.69-$5.84, compared to the Street’s $5.48, and revenue of $3.74-3.785 billion, compared to the Street’s $3.73 billion.

Akamai Technologies Shares Surge 6% on Q3 Beat

Akamai Technologies (NASDAQ:AKAM) shares rose more than 6% yesterday following the company’s reported Q3 results, with EPS of $1.26 coming in better than the Street estimate of $1.22. Revenue was $882 million, compared to the Street estimate of $875.83 million.

Compute and Security accounted for 55% of revenue, but Security has seen a major slowdown in growth, and its Delivery business declined 11% year-over-year. The company noted slowing sales cycles and media and advertising under pressure. Competitors with new platforms are more integrated and bundling (network, security, compute) at major price discounts with integrated functionality.

The company’s Q4 revenue guidance implies 3.3% year-over-year decline at the midpoint, driven by (1) FX headwinds, (2) lengthening sales cycles, (3) seasonality, and (4) contained pressure in CDN from recent price reductions.

Akamai Technologies Reports Q2 Results, Provides Muted Growth Outlook

Akamai Technologies, Inc. (NASDAQ:AKAM) reported its Q2 results, with EPS of $1.35 coming in better than the Street estimate of $1.31. Revenue was $903 million, slightly better than the Street estimate of $899 million.

Delivery performance was weak (down 11% year-over-year) on moderating traffic, recent renewals, and FX headwinds.

Key points from the earnings announcement include (1) delivery traffic is expected to be muted for several quarters and, to reduce costs, Akamai is now turning away some customers with extreme peak traffic, (2) Linode commentary was encouraging, (3) security deceleration suggests continued slowdown in more established products, and (4) guide doesn't assume an improving macro and commentary suggested worsening environment in some markets (e.g., Europe).