What To Expect From Akamai’s Q2 Earnings?

Akamai (NASDAQ:AKAM) is slated to report its Q2 FY’23 results on August 8. We estimate that Akamai’s revenue will come in at about $931 million for the quarter, slightly ahead of consensus estimates and about 3% higher compared to last year. We estimate that earnings will stand at close to $1.42 per share, in line with the consensus. So what are some of the trends that are likely to drive Akamai’s results? See our dashboard analysis on Akamai Earnings Preview for more details on how Akamai’s revenues and earnings are likely to trend for the quarter.

We expect Akamai’s security and compute businesses to remain a key driver of its business over the second quarter, largely helping to offset declines in the delivery business. For perspective, the security segment grew by about 6% year-over-year during the last quarter, while delivery sales fell by almost 11%.  We will be closely watching Akamai’s progress in the computing space, which the company has increased exposure to following its acquisition of Infrastructure as a Service (IaaS) provider Linode in February 2022.  Earlier this year, the company unveiled the Akamai Connected Cloud, putting it in direct competition with deep-pocketed hyper scalers such as Amazon AWS, Microsoft Azure, and Google. Over Q1 compute revenue rose by 49% year-over-year to $116 million due to the impact of the acquisition, although growth rates could slow in Q2.

We remain bullish on Akamai stock for a couple of reasons.  Akamai’s valuation is quite reasonable. The company has guided for Non-GAAP earnings of between $5.69 to $5.84 per share for this year, translating into forward earnings multiple of under 16x. Akamai could see a meaningful upside if it executes well in the computing market – which is sizeable and lucrative. The company could have some advantages, given its large network of around 350,000 edge servers across 4,100 locations, which are located away from metropolitan centers, giving the company considerable geographic scale. Our $103 price estimate for AKAM stock is about 10% ahead of the current market price.  See our analysis on Akamai Valuation: Is AKAM Stock Expensive Or Cheap? for more details on what’s driving the company’s valuation and how it compares with peers.

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[1] Month-to-date and year-to-date as of 8/4/2023
[2] Cumulative total returns since the end of 2016

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