Akamai Technologies Q4 Earnings Takeaways

Akamai Technologies (NASDAQ: AKAM) reported its fourth quarter earnings on Tuesday, February 12. As we had expected, the company delivered a strong beat on revenue and EPS. Not only does the cloud security division’s momentum look sustainable, but the company’s legacy businesses also seem to have stabilized.

Our interactive dashboard on Akamai’s Price Estimate 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, and see all of our information technology data here.

For Q4, the key takeaways are summarized below:

• Cloud Security Solutions: Revenues grew to $185 million (+36% y-o-y). Not only does the company’s management expect traction (in Q4 Akamai got its first $1 million/year security customer), but the company also expects the growth rates to remain above 20% over the next couple of years. In addition to Akamai’s portfolio, the enterprise segment also saw strong booking growth and that is likely to continue.
• CDN and Other Solutions: Revenues grew to $529 million (+1% y-o-y), driven by higher than expected seasonal traffic. The company expects growth going forward to be flat due to the traction in the media (gaming based) division getting dampened out by the relative weakness in the web division.
• The revenue decline from internet platform customers may also have bottomed out, with the first sequential growth (+0.3% q-o-q to $43 million) in eight quarters.
• Similar to 2012, the company’s management changed its depreciation policy to extend the useful lives of network servers from four years to five years

Akamai’s management sees momentum continuing into 2019 and 2020 with events such as the Olympics and U.S. Presidential elections expected to help drive traffic volumes, leading to management issuing fairly confident guidance, as detailed below:

• Q1 Guidance:
  • Revenue: $690-704 million (+5-7% y-o-y)
  • Non-GAAP operating margin: 28-29%
• Fiscal 2019 Guidance:
  • Revenue: $2.81- 2.85 billion
  • Non-GAAP operating margin: 28%

The progress with Akamai’s association with MUFG has matured into a joint venture, the Global Open Network, that will offer blockchain-based payment facility.

We also note that the company’s stock may see some short-term volatility from Elliot Management’s 13F filing for the December quarter by February 15.

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