- Akamai reported its Q1 2015 earnings after the market close on April 28, reporting in line with analyst estimates on revenue as well as earnings.
- The strong growth in security services was a huge positive following the launch of new security products through the quarter.
- Our Akamai stock analysis reiterates our positive long term outlook on Akamai.
Akamai Technologies (NASDAQ: AKAM) reported earnings for Q1 2015 after the market close yesterday (April 28). Akamai reported revenue of $526.5 million-marginally and earnings of 61 cents per share. However, Investors took note of the lower than estimates guidance for Q2 2015, sending the stock lower in the after-hours trade, following the earnings announcement. The stock has been among our top stock picks for over a year, gaining over 60% since its addition.
Akamai earnings Q2 2015: Analyst earnings v/s analyst estimates
Akamai earnings were in line with analyst consensus estimates, missing earnings estimates of 62 cents per share by a cent and marginally beating the revenue consensus of $526.2 million. The earnings miss was the first for the company in the last 7 quarters, with the currency headwinds taking a significant toll on the topline as well as EPS.
Akamai earnings summary Q1 2015
Akamai reported yet another quarter of growth across its topline and bottomline. The company reported 8% YoY growth in EPS on a 16% YoY growth in topline. The revenue growth was significantly lower than the 24% average growth reported through FY2014. However, forex adjusted revenue growth was strong at 20% driven by broad based growth across its major operating segments. However, the growth in EPS was significantly lower than 14% average EPS growth throughout 2014.
Akamai revenue was driven by strong growth across all the three operating segments of ‘Media Delivery Solutions’, ‘Performance and Security Solutions’ and ‘Service and Support Solutions’.
- Media Delivery Solutions: 12% YoY growth contributing 46% of total revenue
- Performance & Security Solutions: 21% Y/Y growth contributing 46.5% of total revenue
- Service & Support Solutions: 12% Y/Y growth contributing 8.7% of total revenue
The strong growth in security services was a huge positive following the launch of new security products through the quarter. As CEO Tom Leighton quoted on the Q1 2015 earnings conference call, "Q1 was another strong quarter for Akamai driven by continued solid revenue performance across all of our geographies and all of our major product lines, with especially strong growth from our Cloud Security Solutions."
Akamai earnings Q1 2015 profit margin analysis
|Profit margin analysis||Q1 2014||Q4 2014||Q1 2015||QoQ change||YoY change|
|Gross profit margin||69.2%||69.6%||67.8%||-1.7%||-1.4%|
|Net Income margin||16.1%||18.1%||14.8%||-3.3%||-1.3%|
Akamai saw profit margin contractions across the gross, operating as well as net levels, largely driven by a planned ramp up in op-ex. The operating margin contraction was driven by a 22% growth in op-ex compared to the 16% topline growth.
The profit margin contractions were in line with the management’s commentary in the earlier quarters. The planned ramp up in operational expenses drove margin contractions, leading to a slower growth in earnings as compared to revenue growth.
Akamai Q2 2015 guidance
Akamai management guided to a Q2 2015 non-GAAP EPS of range of 55-59 cents per share and a revenue range of $532-$547 million. The guidance was below analyst consensus of 63 cents per share non-GAAP EPS and $544.8 million revenue, possibly triggering the fall in stock price post the earnings release.
Akamai: A positive long term investment
The Q2 2015 guidance midpoint implies a further slowdown in bottomline growth even as revenue is projected to rise 13 % YoY. The revenue growth is lower than Q2 2014 on account of a very strong comparable in Q2 2014 and continued forex headwinds from the further appreciation of the USD against most major currencies. The profit margins will continue their minor decline with the management reiterating its long EBITDA margin range of 40%-41% post Q2. While the declining margins will slow earnings growth as compared to the topline growth, the strong performance of the security segment was a huge positive from Akamai’s Q1 earnings report. The consistent profitability, strong growth and reasonable valuations (LTM PE ratio of 33.8) make Akamai an attractive stock for the long term. The latest fall in stock price could be a good entry point for the long term investors. Our Akamai stock analysis reflects our positive long term outlook on the stock post the Q1 2015 earnings announcement.
Akamai Earnings Preview
-- Akamai Q1 2015 Earnings Preview (published on April 16, 2015)
- Akamai earnings for Q1 2015 are due to be reported on 28 April 2015.
- Akamai's revenue growth is expected to slow compared to record levels seen in 2014.
- Net margins could contract in the absence of US federal R&D tax credits.
Akamai Earnings Q1 2015 Video Transcript
Hello and welcome to this Akamai earnings preview videograph.
Akamai Earnings Schedule
Akamai is scheduled to report its earnings for Q1 2015, post market hours, on the 28th of April, followed by its earnings call at 4.30 PM Eastern standard time.
Akamai Q1 2015 Earnings: Analyst Estimates
Analysts expect Akamai to report a revenue growth of just over 16%, which is in line with the midpoint, of the company's guidance for Q1. As for EPS growth, analysts expect a 5% improvement in the non GAAP earnings per share, over Q1 twenty fourteen.
Akamai Q1 Earnings Outlook
Akamai had a great year in terms of growth in twenty fourteen. Revenue growth is therefore expected to slowdown relatively, due to higher comparable numbers in the year ago. While revenue growth could slow down, relative to twenty fourteen levels on tougher comparable numbers, the company's net profit margins could come in lower as well. In the absence of the US federal R&D tax credit, the effective tax rates are expected to rise in twenty fifteen.
Akamai Stock Analysis
In spite of the potential slowdown in growth, and lower profitability, at-large Akamai has consistently delivered healthy revenue growth and stable profit margins. Additionally, expansion in gross margins, gives Akamai the flexibility to spend for growth, or pursue margin expansion. With its future tied to the growth of the internet, we think Akamai is a good investment option for long term investors.
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You can also see our Akamai stock analysis video for a quick roundup of key fundamentals like operating and free cash flows, return on equity and long term profitability trends post Akamai's Q4 2014 earnings release.