Will Akamai’s Expenses Affect Its Run Of Good Fortune In 2020?

Akamai Technologies (NASDAQ: AKAM) has done well over the years to improve its net margins despite a sizable reduction in revenue growth rate by reigning in its costs. Both the cost of sales and operating expenses have fallen as a percentage of revenue, which has then helped Akamai’s valuation improve in recent quarters. However, increasing competition is likely to result in Akamai spending more on R&D as well as sales & marketing in 2020 – something that will weigh on its bottom line. Trefis captures trends in Akamai’s Expenses over recent years along with our forecast for 2019 and 2020 in an interactive dashboard, parts of which are highlighted below.

Akamai is a content delivery, network, cybersecurity and cloud service provider. It is based out of Cambridge, Massachusetts and employs over 7,600 personnel. The company competes with Level3, Cloudflare, Limelight, and CDNetworks in the internet-security space. Trefis also captures trends in Akamai’s Revenues over recent years in a separate interactive dashboard.

What Factors Have Helped Akamai Control Its Expense Growth Rate?

• Operating costs, which were increasing quickly in previous years, have slowed down over recent years.  In 2019, these costs are expected to increase at their slowest pace in the last 5 years at least.
• Similarly, research and development costs have remained steady in recent years.
• However, with Akamai increasingly relying on enterprise and cloud security to drive its revenue, it may have to increase its R&D spend in order to retain its edge in an ever more competitive environment.
• Akamai’s OTT business will be important for its margins in 2020, with Akamai’s content pipeline and services like HBO Max expected to improve the company’s margins.
• Higher revenue too will play a key role for margins as Akamai looks to take advantage of newer content.
• The biggest factor that may affect Akamai’s costs is competition.
• With both the security and CDN business facing stiffer competition from key market players, Akamai’s margins may decline in the near future.

Akamai’s stock has enjoyed a good run in 2019, with the stock up nearly 60%. Steady margins, a relatively strong business and tailwinds for the industry remain key to the company’s fortunes. But risks remain as the company goes into 2020. Competition is increasing and Akamai may not have the good fortunes of the recent past repeat themselves in 2020.