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It has been about a month since the last earnings report for Akamai Technologies (AKAM). Shares have added about 0.9% 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 catalysts.
Akamai’s Q2 Earnings and Revenues Surpass Estimates
Akamai reported second-quarter 2021 adjusted earnings of $1.42 per share that beat the Zacks Consensus Estimate by 2.2% and improved 3% year over year (down 1% after adjusting for the impact of foreign exchange rates).
Revenues of $853 million outpaced the Zacks Consensus Estimate by 0.9% and increased 7.3% year over year (up 5% after adjusting for forex). Continued momentum witnessed in security business as well as higher traffic on its intelligent Edge platform benefited the top line.
Excluding Internet Platform Customers, revenues rose 6.1% year over year (up 3% after adjusting for forex) to $789.2 million. Revenues from Internet Platform Customers were $63.6 million, up 25% year over year.
By geography, U.S. revenues were $449.6 million, up 1.3% year over year. International revenues were $403.3 million, up 14.9% year over year (up 9% after adjusting for forex).
Realignment of Product Groups
Beginning Mar 1, 2021, Akamai has two new business groups — the Security Technology Group and the Edge Technology Group. Both 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, and revenues from the Edge Technology Group were previously reported as revenues from CDN and all other solutions.
Security Technology Group revenues were $325.1 million, up 25.4% year over year (up 22% after adjusting for forex). Akamai witnessed strong demand for the majority of its security solutions, including Bot Manager, Prolexic and Access Control product suite.
Revenues of $527.7 million from Edge Technology Group decreased 1.4% on a year-over-year basis (down 4% after adjusting for forex). The decline was primarily attributed to tough year-over-year comparison, partially offset by the continued strong growth in edge applications business.
Revenues by Division
Web Division revenues increased 7.6% year over year (up 5% after adjusting for forex) to $431.5 million, owing to strong growth in the security business.
Media and Carrier Division revenues of $421.3 million rose 7% (up 5% after adjusting for forex) year over year. The segment’s top line was driven by higher traffic in video streaming and gaming software downloads.
Non-GAAP cash gross margin contracted 100 basis points (bps) on a year-over-year basis to 75.6%.
Cash operating expenses declined 150 bps to 30.4% due to lower hiring in the reported quarter.
Adjusted EBITDA margin of 45.2% expanded 50 bps on a year-over-year basis.
Non-GAAP operating margin contracted 80 bps on a year-over-year basis to 31.6%.
Balance Sheet & Cash Flow
As of Jun 30, 2021, Akamai’s cash and cash equivalents and marketable securities were $2.58 billion.
The company generated cash flow of $378.1 million compared with $249.8 million reported in the previous quarter. Free cash flow for the second quarter was $223.6 million compared with $85.1 million reported in first-quarter 2021.
In the reported quarter, Akamai repurchased 0.9 million shares for $96 million. The company has approximately $417 million remaining in its previously announced share repurchase authorization.
For third-quarter 2021, Akamai expects revenues between $845 million and $860 million, indicating 6% to 8% year-over-year growth at constant currency (cc). Revenues are expected to benefit from favorable forex ($5-million impact) year over year.
Cash gross margins are anticipated to be roughly 76%. Adjusted EBITDA margins are expected to be roughly 45%. Akamai expects non-GAAP operating margin of 31% for the third quarter.
Operating expenses are expected between $257 million and $262 million.
Non-GAAP earnings are envisioned in the range of $1.37-$1.41 per share.
For 2021, Akamai raised its revenue and earnings guidance. The company now anticipates revenues between $3.420 billion and $3.450 billion, indicating 6% to 7% year-over-year growth at cc. Previously, revenues were guided in the range of $3.4 billion to $3.435 billion.
Security revenue growth is now expected to be in the low-to-mid-20% range.
Akamai now expects non-GAAP operating margin to be 31% for 2021.
Non-GAAP earnings are now projected to be $5.54-$5.65 per share compared with the prior guidance of $5.45-$5.52.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
Currently, Akamai Technologies has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile 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.
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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