Akamai posted a stronger-than-expected set of Q2 2023 results. For the period ending June 30, the company's revenue rose 3.7% year-over-year to $936 million, beating estimates, while adjusted earnings stood at $1.49 per share. For Q3, the company is guiding adjusted earnings of between $1.48 to $1.52 per share, and revenue of about $952 million.
Akamai has been increasingly doubling down on the cloud computing space in recent quarters, taking on the likes of Amazon, Alphabet, and Microsoft. Akamai could see an upside if it executes well in the computing market – which is sizeable and lucrative. Akamai has a network of 350,000 edge servers, across 4,100 locations, which are located away from metropolitan centers, giving the company considerable geographic scale.
Akamai Technologies is a global content delivery network (CDN) and cloud services provider, focused on improving the speed, reliability, and security of online content and applications. The company is estimated to deliver between 15-30% of the global web traffic. Many popular websites use Akamai for content delivery, which means that some of the content you view when visiting these sites is delivered from a nearby Akamai server, rather than the company's own servers.
We believe the Web Division is the more valuable segment within Akamai for the following reasons:
Web and mobile performance businesses are to enable dynamic websites and applications to have instant response times. Value-added services, such as transaction security, is an important part of delivering content for websites. Akamai provides transaction security for commerce sites, such as Best Buy, Microsoft, and Travelocity.com. These services help Akamai retain customers in the commerce and financial services space.
Apart from security, other value-added services, like advertising decisions, dynamic site acceleration services, etc., have helped Akamai in winning and retaining a large number of online shopping customers. The company is also providing cloud security solutions (gained through the acquisition of Nominum).
Akamai's value proposition has evolved beyond being the fastest content delivery network. As competitors grow increasingly capable of fast content delivery at similar prices, Akamai has positioned itself as a full-service provider -- touting its ability to offer multiple value-added services, such as the delivery of targeted advertising and cloud-based security for its customers.
Its acquisition of Nominum, Inc. has helped it bolster its security solutions portfolio and reduce competition in this area. Such acquisitions will help Akamai protect its margins and grow its business.
Media content is rising at a significant pace as a greater amount of video moves online and video quality increases (for example HD video). Some of the services that are stimulating this trend are Netflix, Hulu, and Youtube. Although growing media demand is an opportunity, it is also a source of gross margin pressure, since one of Akamai's largest costs is the cost of bandwidth to deliver data. Akamai passes on some of these costs to customers in the form of a bandwidth usage-based pricing structure; however, Akamai's pricing will be under pressure from volume discounts and competition from other content delivery networks.
Akamai has historically charged premium prices to its customers for fast and secure delivery of its web content. However, the company is increasingly competitive on pricing, particularly on video content, in an effort to attract more customers and traffic to its network. In several deals, it has even outbid its competitors on price. This is likely to win more customers for Akamai but may put pressure on margins.