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Akamai Earnings Review - Q2 2014

Akamai Earnings Review - Q2 2014

posted by Virendra Singh Chauhan | published by Amigobulls on
  • Akamai technologies reported its Q2 2014 numbers on July 31 2014.
  • The company beat analyst consensus on both topline as well as earnings, delivering yet another quarter of growth.
  • We expect the earnings growth to continue over the long term, leading to further upside in Akamai stock price.
  • Our Akamai stock analysis reiterates our positive long term outlook on Akamai.

 

Akamai earnings report Q2 2014

Akamai Technologies (NASDAQ:AKAM), the leader in content delivery solutions and one among our top stock picks announced its Q2 2014 results on July 31, 2014. Akamai stock has been among our top stock picks for close to nine months, netting 25% since being added to our top stock picks. We today look into the company’s Q2 2014 numbers and update our long term view on the stock.

 

Akamai Technologies: Solid performance on topline as well as bottomline

Akamai delivered yet another quarter of revenue growth and earnings growth. The Q2 2014 revenue and earnings performance is summarized in the table below.

Q2 2013

Q1 2014

Q2 2014

QoQ growth

YoY growth

Revenue

378.106

453.502

476.035

5.0%

25.9%

EPS diluted

0.34

0.4

0.4

0.0%

17.6%

 

Akamai registered a topline growth of 26% YoY and 5% QoQ, while the earnings grew by 17.6% YoY and remained consistent with Q1 2013. Revenue growth was driven largely by strong growth in its ‘Media Delivery Solutions’ and in the ‘Performance and Security Solutions’ segment.

  • Media Delivery Solutions: Grew 20.5% Y/Y to contribute 45.4% of total revenue
  • Performance & Security Solutions: Grew 29.5% Y/Y to contribute 45.7% of revenue
  • Service & Support Solutions: Grew 35.1% Y/Y to contribute 9% of revenue

 

Once again the impact of ‘Service & Support Solutions’ the fastest growing among Akamai’s three segments, was marginal due to the relatively small revenue base of the segment.

 

The total costs grew 9.3% on a QoQ basis and 30% on a YoY basis, clearly outpacing revenue growth.

QoQ growth

YoY growth

Cost of revenue

7.0%

19.7%

Research and Development

13.5%

55.6%

Sales and Marketing

12.8%

34.8%

General and Administrative

7.5%

33.5%

Amortization of acquired intangible assets

22.7%

46.5%

Restructuring charges

-22.6%

45.5%

Total costs

9.3%

29.6%

 

The faster growth in costs was reflected in profit margin contractions, which led to slower growth in earnings as compared to topline growth. The gross, operating and net profit margins for Q2 2013 and the YoY and QoQ changes are displayed in the table below.

 

Akamai Q2 2014 Profit Margin Analysis

Q2 2013

Q1 2014

Q2 2014

QoQ growth

YoY growth

Gross profit

67.0%

69.2%

68.6%

-0.6%

1.6%

Operating profit

25.8%

26.6%

23.6%

-3.0%

-2.2%

Net Profit

16.4%

16.1%

15.3%

-0.7%

-1.1%

 

The increase in gross margin was offset by a huge increase in sales & marketing and general & administrative expenses, which was due to an increase in planned hiring heading into Q3, as stated by Akamai CFO James Benson on the conference call.

 

Akamai Actual performance v/s Analyst estimates

Akamai beat analyst estimates on both the topline as well as bottomline. The reported non-GAAP earnings of 58 cents on revenue of $476 million came in higher than the analyst consensus estimate of 55 cents earnings on $472.9 million revenues. The reported numbers implied a .6% revenue beat accompanied by an earnings surprise of 5.5%. Akamai reported an earnings surprise for the eleventh time in the last twelve reported quarters, while the company also reported a seventh straight quarter of revenue beat.

 

Akamai Q3 2014 guidance and performance

The company has issued the following guidance for Q3 2014.

High end

Low end

Average

Revenue (in Millions of $)

484

496

490

Gross profit margin

69%

68%

68.5%

EBITDA margin

42%

41%

41.5%

Non-GAAP depreciation (in Millions of $)

50

52

51

Non-GAAP operating margin

31%

32%

31.5%

Non-GAAP tax rate

34%

Non-GAAP EPS

0.55

0.58

0.565

 

Given Akamai's  Q3 2014 revenue and cost guidance and Q2 2014 performance, we came up with the following model of Akamai Q3 2014 performance.

Q3 2013 (in millions of $, except EPS numbers)

Non-GAAP

Revenue

490

EBITDA

205.35

Depreciation

51

Operating Income

154.35

Tax (@34%)

52.48

Net Income

101.87

EPS diluted

0.57

Number of shares

180.3

 

Akamai revenue growth and earnings growth to continue into Q3

The guidance implies a 24% YoY growth in Q3 2014 revenue, while the estimated EPS implies a 14% growth over Q3 2013. We expect the profit margins to move higher once we are out of the current investment cycle, with the management reiterating its long term EBITDA margins of 41%-45%. We reiterate our positive outlook on Akamai stock which is currently reflected in our Akamai stock analysis. We see continued growth in topline and earnings driving Akamai stock price higher over the long term.

Disclaimer: We do not hold any stake in the aforesaid stocks. Please read our detailed disclaimer.

About the author

Virendra Singh Chauhan
Virendra Singh Chauhan is a Financial Analyst at Amigobulls. An MBA(Finance) with specialization in investments, Virendra is a value investor who loves to analyze stocks and involve in discussions regarding investments in general. His areas of interest include personal finance as well as entrepreneurship, apart from equity analysis in particular. He loves companies with strong cash flows and profits today rather than companies built on promises of future. Contact him at virendra.chauhan AT amigobulls.com.
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