- Akamai has beaten estimates in 7 out of 8 preceding quarters.
- Akamai is financially robust with healthy growth and improving profitability.
- Akamai is attractive at current prices post the recent pullback.
Akamai (NASDAQ:AKAM), the leading provider of cloud services for online content delivery and security, is slated to report its earnings for Q1 2014 on 2 May. Akamai finds a place among our top stock picks owing to its ability to consistently deliver healthy revenue growth and profitability. After the recent broad based correction across tech stocks, Akamai stock has fallen by nearly 15% to become even more attractive.
Akamai Q1 2014 Earnings: Guidance & Estimates
Akamai’s revenue guidance of $426 - 442 million ranges from in line (at the lower end) to positive (at the higher end) when compared with its track record. Growth rate ranges from 16% to 20% Y/Y (over Q1 2013).
Analyst Estimates for Akamai - Revenue - Average: $441 million Range: $433 – 450 million EPS: $0.53 a share
The company’s guidance doesn’t factor in any contributions from acquisition target, cloud security solutions company Prolexic.
Akamai Financial Performance
Akamai has beaten revenue and profitability estimates in 7 out of its 8 preceding quarters, thus proving its ability to outperform consistently.
In FY 2013, Akamai recorded a revenue growth of 15% as opposed to a 19% growth in FY 2012. However, despite the slowdown in growth, the company’s revenue addition for the year grew in absolute terms.
FY 2013 was a good year for Akamai in terms of profitability, despite the fact that a 7% expansion in gross profit margins, was partly negated by faster than expected hiring. In FY 2013, the company registered its highest operating profit and net profit margins over the last 3 years, following a drop in FY 2012.
In FY 2013, Akamai generated operating cash flows of $564 million, translating to 35% of its revenue in that period. The company ended the year with cash and cash equivalents of $673 million.
Akamai Segmental Performance
In its latest quarter, Q4 2013, Akamai’s revenue continued to show healthy growth across segments.
- Media Delivery Solutions - grew 19% Y/Y to account for 48% of revenue
- Performance & Security Solutions - grew 18% Y/Y to account for 44% of revenue
- Service & Support Solutions - grew 36% Y/Y to account for 8% of revenue
Over the last 3 years, the ‘Performance & Security’ and ‘Service & Support’ segments have grown at a faster pace to increase their share in the company’s revenue. In FY 2013, Akamai invested in adding sales capacity and new products/features to its ‘Performance and Security’ segment, which will also get a boost from its acquisition of Prolexic.
Akamai Q1 2014 Outlook
Akamai’s gross margins could improve in the coming quarters if it continues to optimize the efficiency of its servers as it has done in the past. The company expects to clock gross margins of about 68% going forward. Further, the company’s strong guidance is a positive, given that it comes in the midst of price negotiations from one its biggest media customers.
Positives could also come from the fact that, earlier in the year, Akamai delivered one of the most viewed online live streams in the form of the Super Bowl. Further, it provided streaming and security services for NBC’s comprehensive online coverage of the Winter Olympics in Sochi, the first edition of the Olympics in which all events were streamed live.
Telefonica’s recent global alliance with Akamai to deliver its suite of content delivery networks (CDN) solutions is another opportunity to watch out for.
At a price of $53.77 a share, Akamai currently trades at a Price/Earnings (P/E) multiple of 32.8. Its current P/E is at the midpoint of its 27 – 39 range in the trailing twelve months (TTM). However, at 0.7 its P/E to Growth or PEG multiple is closer to the lower end of its TTM trading band of 0.6 to 1.7.
Further, an ROE of 12%, steady growth and improving profitability make Akamai even more attractive post the recent pullback in its stock price.
Akamai has been part of our top internet stock picks since 15 November 2013, and has returned over 17.5% in the 5 month period since.
To see Akamai stock price movement, click here Akamai (NASDAQ:AKAM)