Akamai Falls On Missed Earnings & Bleak Future

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Akamai

Akamai’s stock crashed 10% after it reported its Q2 fiscal 2016 results, as its revenues missed estimates and EPS came in line. Although the company’s results themselves may not reflect much weakness, shrinking revenues from its main clients such as Apple and Facebook are a big concern. These technology companies have been increasingly investing in their own network infrastructures, and are subsequently reducing their reliance on Akamai services. Revenue from Akamai’s six biggest technology company’s accounted for just 11% of its net sales in Q2 2016, down from 18% in the year ago period.

Even though the company’s big customers are planning to utilize their own systems for data flow instead of outsourcing it, Akamai’s CEO believes that the worst may be behind them. While decline in prices from some customers can impair the company’s margins in the near term, it expects to see some improvement next year. In fact, Akamai’s EBITDA margins, excluding non-cash and special items, actually improved year over year in the second quarter. Looking ahead, Akamai is banking on a significant improvement in traditional media companies’ video business, in tandem with the recently concluded Euro Cup and upcoming Olympic Games, to provide a push to its business. Also, rapid growth of its nascent security business also holds some potential for long term growth.

Akamai Q2 earnings part one

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Akamai Q2 earnings part two

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Akamai
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