Akamai's (AKAM) Q3 Earnings and Revenues Beat Estimates

Akamai Technologies AKAM reported third-quarter 2021 adjusted earnings of $1.45 per share that beat the Zacks Consensus Estimate by 4.3% and improved 11% year over year (up 10% after adjusting for the impact of foreign exchange rates).

Revenues of $860.3 million outpaced the Zacks Consensus Estimate by 0.9% and increased 9% year over year (up 8% after adjusting for forex). Continued momentum in the security business contributed to the top line.

Excluding Internet Platform Customers, revenues rose 8% year over year (up 7% after adjusting for forex) to $799.9 million. Revenues in Internet Platform Customers amounted to $60.5 million, up 19% year over year.

By geography, U.S. revenues were $449 million, up 3% year over year. International revenues were $412 million, up 16% year over year (up 15% after adjusting for forex).

Akamai Technologies, Inc. Price, Consensus and EPS Surprise

Akamai Technologies, Inc. Price, Consensus and EPS Surprise

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

Realignment of Product Groups

Beginning Mar 1, 2021, Akamai has two new business groups — the Security Technology Group and the Edge Technology Group. The business groups will have a unified sales organization and utilize the Akamai Intelligent Edge Platform.

The new groups are aligned with their product offerings. Revenues from the Security Technology Group were previously reported as revenues from Cloud Security Solutions. Revenues from the Edge Technology Group were previously reported as revenues from CDN and all other solutions.

Security Technology Group revenues were $335 million, up 26% year over year (up 25% after adjusting for forex).

Revenues from Edge Technology Group amounted to of $526 million, unchanged on a year-over-year basis (down 1% after adjusting for forex).

Revenues by Division

Web Division revenues increased 4% year over year (up 4% after adjusting for forex) to $432.9 million, owing to strong growth in the security business.

Media and Carrier Division revenues of $427.5 million rose 13% (up 13% after adjusting for forex) year over year.

Operating Details

Cash gross margin was unchanged on a year-over-year basis to 76%.

Adjusted EBITDA margin of 46% expanded 200 bps on a year-over-year basis.

Non-GAAP operating margin unchanged on a year-over-year basis to 32%.

Balance Sheet & Cash Flow

As of Sep 30, 2021, Akamai’s cash and cash equivalents and marketable securities were $2.8 billion.

The company generated cash flow of $389.7 million compared with $378.1 million reported in the previous quarter. Free cash flow for the third quarter was $273.5 million compared with $223.6 million reported in second-quarter 2021.

In the reported quarter, Akamai repurchased 0.8 million shares for $97 million. The company has approximately $321 million remaining in its previously-announced share repurchase authorization.

The company also authorized a new buyback plan worth $1.8 billion, taking effect from Jan 1, 2022 through Dec 31, 2024. This new plan is in addition to the company’s existing authorization of $321 million (as of Sep 30, 2021), expiring at the end of 2021.

Guidance

For fourth-quarter 2021, Akamai expects revenues between $883 million and $908 million, indicating 5% to 8% year-over-year growth at constant currency (cc). Revenues are expected to be negatively impacted from unfavorable forex ($3-million impact) year over year. Guardicore is expected to add $6 million to $7 million to revenues fourth quarter, noted management.

The Zacks Consensus Estimate for revenues is currently pegged at $897.9 million, which indicates an improvement of 6.1% from the year-ago quarter’s reported figure.

Cash gross margins are anticipated to be nearly 76%. EBITDA margins are expected to be 43-44%. Akamai expects a non-GAAP operating margin of 30% for the fourth quarter.

Non-GAAP earnings are envisioned in the range of $1.37-$1.44 per share. The Zacks Consensus Estimate for the same is pegged at $1.43 per share.

For 2021, Akamai raised its revenue and earnings guidance. The company now anticipates revenues between $3.439 billion and $3.464 billion, indicating 7% year-over-year growth at cc. Previously, revenues were guided in the range of $3.420-$3.450 billion.

The Zacks Consensus Estimate for revenues is currently pegged at $3.45 billion, which suggests growth of 7.8% from the year-ago quarter’s levels.

Security revenue growth is now expected to be in the mid-20% range. Earlier, security revenue growth was expected in the low-to-mid-20% range.

Akamai expects non-GAAP operating margin to be 31% for 2021.

Non-GAAP earnings are now projected to be $5.63-$5.69 per share compared with the prior guidance of $5.54-$5.65. The Zacks Consensus Estimate is pegged at $5.62 per share, which suggests a rise of 7.7% from the prior year’s reported figure.

Zacks Rank & Stocks to Consider

Akamai currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector include HP Inc HPQ, Synaptics Incorporated SYNA and Etsy ETSY. All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

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