What Will Drive Consistent Revenue Growth For Akamai Through 2018?

by Trefis Team
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Akamai (NASDAQ:AKAM) recently announced its Q2 earnings, reporting a 9% growth in net revenues to $663 million. Keeping up the trend from recent quarters, the company’s international revenues were up 21% on a y-o-y basis to almost $250 million, while revenues in the U.S. were up 3% to $413 million. In terms of business segments, Akamai’s web division reported sustained demand through the June quarter with total revenues increasing 11% to $351 million. This trend is consistent in recent quarters with growth in teen percentages over the period. On the other hand, media and carrier division revenues rose 8% over Q2’17 to $312 million, after reporting mixed trends in recent quarters. Going forward, we expect the web division to continue to drive top line growth, while media and carrier segment revenues are expected to increase at modest rates through the year.

We expect top line growth to translate to higher profits for Akamai through the year. We forecast net income and earnings per share to increase 16-18% to $525 million and $3.10, respectively. This is slightly lower than the consensus estimates for the company. We have summarized our expectations on our interactive full year results expectation dashboard for Akamai. If you think differently or disagree with our forecasts, you can modify expected segment revenues and margins for the quarter to see how the EPS will be affected in for the year.

What We’ll Be Watching In 2018

Akamai’s media division revenues have witnessed declines (1-2%) over the last couple of years. The key reason for the decline in Media Content Delivery Solutions has been the fact that some of the company’s largest customers such as Amazon, Apple, Facebook, Google, Microsoft, and Netflix deployed content delivery networks (CDNs) of their own. Over the last two quarters, combined media and carrier division revenues picked up with a 6% revenue growth to $316 million in the most recent quarter. This was attributable to the company gaining traction in the over-the-top (OTT) delivery and gaming sectors. In addition, the company reassigned some of its customers from the media and carrier division to the web division and revised historical results in order to reflect the updated categorization. This also drove year-over-year comparisons favorably for the segment. Going forward we expect a modest increase in media segment revenues to just under $1.3 billion. Additionally, the company’s web segment has performed well in recent quarters. This trend is expected to continue through 2018, with the web segment expected to drive top line growth for the company. As a result, we forecast web segment revenues to be up 10% to over $1.4 billion.

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