What Drove Akamai Technologies’ Strong Earnings, Stock Rally?

by Trefis Team
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Akamai Technologies (NASDAQ: AKAM) reported its third quarter earnings on Monday, October 29 after market close. The company reported total revenue of $670 million for Q3, $6 million ahead of the consensus estimates. We highlighted previously that the momentum in the cloud security division could lead to revenues coming in closer to the higher end of the company’s guidance for Q3, which was $668 million. In this note, we take a look at the company’s performance and expectations for the rest of the year.

We currently have a price estimate of $75 per share for Akamai Technologies, which is slightly higher than the current market price after the stock rallied significantly post-earnings. Our interactive dashboard on Akamai Technologies’ Valuation outlines our forecasts and estimates for the company. You can modify any of the key drivers to visualize the impact of changes on its valuation.

Cloud Security Growth Offsets Flat CDN Revenues

Akamai’s Cloud Security (+37% y-o-y to $169 million) revenue growth accelerated in Q3, up from the +33% y-o-y growth seen in Q2. The security business now accounts for nearly 25% of the company’s total revenues and has an annual run rate of $700 million. Momentum in the Web and Media Division customer base is likely to drive security business growth going forward.

Q3 revenues for the company’s CDN business came in at $501 million, down slightly y-o-y. The company’s management cited the additional focus on security as one of the reasons for flat CDN revenues. However, management believes that there is still significant growth potential in the CDN business, especially as the company focuses on enhancing product quality (the Image Manager product is likely to also add video management capabilities).

For Q4, Akamai’s management guided for revenue of $692 to $709 million, implying a 2018 revenue range of $2.69 billion to $2.71 billion. We believe that the underlying strength in the cloud security space is likely to drive strong growth in the business, offsetting the near-term CDN softness.

Do not agree with our forecast? Create your own price forecast for Akamai Technologies by changing the base inputs (blue dots) on our interactive dashboard.

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