Akamai Technologies (AKAM) Down 10.7% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Akamai Technologies (NASDAQ:AKAM). Shares have lost about 10.7% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Akamai Technologies due for a breakout? 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 Q4 Earnings and Revenues Beat Estimates

Akamai Technologies, Inc. reported non-GAAP fourth-quarter 2019 earnings of $1.23 per share beating the Zacks Consensus Estimate by 8.9%. The figure also surged 15% from the year-ago quarter (up 16% adjusted for foreign exchange).

Better-than-expected year-over-year growth in earnings can be attributed to robust increase in revenues, and favorable impact of the cost reduction initiatives and lower tax rate.

Revenues of $772.1 million comfortably outpaced the Zacks Consensus Estimate of $750 million and improved 8% from the year-ago quarter (up 9% adjusted for foreign exchange).

The top line benefited from robust performance of cloud security business, strong traffic witnessed in OTT video vertical and media business, and holiday seasonality in e-commerce domain.

Excluding Internet Platform Customers, revenues improved 7% year over year (up 8% adjusted for foreign exchange) to $720.2 million.

Revenues from Internet Platform Customers were $51.9 million, up 20% from the year-ago quarter. Management noted that "event-specific" revenues of $6 million were generated in the reported quarter, which the company does not anticipate in first-quarter 2020.

Solid Growth in Cloud Security Solutions

Cloud Security Solutions revenues were $237.9 million, surging 29% year over year (up 29% adjusted for foreign exchange).

Solid growth was driven by strong demand for Kona Site Defender, Bot Manager and Prolexic Solutions. Further, the traction gained by Enterprise Application Access and Enterprise Threat Protector is providing the company a competitive edge in the Internet access security vertical.

Management remains optimistic regarding the growing influence of its new security solutions, including Secure Web Gateway, Multi-Factor Authentication, Page Integrity Manager, Akamai Enterprise Defender and Akamai Identity Cloud. Particularly, acquisition of KryptCo is expected to aid the company strengthen its Secure Web Gateway solution.

Revenues from CDN and other solutions of $534.2 million increased 1% on a year-over-year basis (up 1% adjusted for foreign exchange).

Segment Details

Web Division revenues increased 9% year over year (up 9% adjusted for foreign exchange) to $419.5 million, primarily on account of solid traffic growth driven by holiday seasonality in e-commerce and media verticals.

Media and Carrier Division revenues of $352.6 million grew 8% (up 8% adjusted for foreign exchange) from the year-ago quarter. Management stated that growth was primarily driven by robust demand for OTT video services, and gaming and software downloads.

Robust Growth in International Revenues

U.S. revenues were $446 million, up 3% on a year-over-year basis. International revenues were $326.1 million, up 17% year over year (up 18% adjusted for foreign exchange) primarily on account of robust performance in Asia Pacific.

Management stated that foreign exchange volatility negatively impacted revenues by $3 million on a year-over-year basis.

Margins in Detail

Adjusted EBITDA margin of 41% contracted 100 basis points (bps) on a year-over-year basis.

Cash gross margin contracted 100 bps on a year-over-year basis to 78%.

Cash operating expenses (as a percentage of revenues) expanded 20 bps from the year-ago quarter to 36.9%.

Non-GAAP operating margin expanded 100 bps to 29%.

Balance Sheet & Cash Flow

As of Dec 31, 2019, Akamai’s cash and cash equivalents (and total marketable securities) were $1.537 billion as compared with $1.570 billion as of Sep 30, 2019.

The company generated cash flow from operations of $282.1 million as compared with $297.4 million in the previous quarter.

In the reported quarter, Akamai repurchased 0.5 million shares for $42.7 million. Further, the company had 162 million shares outstanding as of Dec 31, 2019.

Free cash flow came in at $148.5 million, compared with $144.8 million reported in the previous quarter.

Guidance

For first-quarter 2020, Akamai envisions revenues between $741 million and $755 million.

Non-GAAP earnings are envisioned in the range of $1.13 to $1.18 per share.

Akamai expects full-year 2020 revenues in the range of $3.055-$3.105 billion.

Non-GAAP earnings are projected to be between $4.80 and $4.95 per share.

The company is optimistic regarding plans to achieve non-GAAP operating margin of 30% in 2020. Adjusted EBITDA margin for 2020 is expected to 43%.

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, Akamai Technologies has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, 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 broadly trending upward for the stock, and the magnitude of these revisions has been net zero. It comes with little surprise Akamai Technologies has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.