Akamai Q3 2014 Earnings Review

  • Akamai technologies reported its Q3 2014 numbers yesterday (October 29) after the market close.
  • The company reported strong numbers, beating analyst consensus on both topline as well as bottomline.
  • We expect the earnings growth to continue over the long term led by increased demand for media delivery services and internet security services.
  • Our Akamai stock analysis reiterates our positive long term outlook on the stock.

Akamai Q3 2014 earnings review

Akamai Technologies (NASDAQ:AKAM), the leader in content delivery solutions and one among our top stock picks announced its Q3 2014 results yesterday (Oct 29) after the market close. Akamai stock has been among our top stock picks for close to a year, gaining 23% since being added to our top stock picks. We today look into the company’s latest quarterly earnings and review our outlook on the stock.

Akamai Q3 2014: Continued growth in topline as well as bottomline

Akamai reported yet another quarter of solid growth in revenue as well as earnings. The company reported a 15% YoY growth in earnings accompanied by 26% YoY growth in topline. The revenue growth was in-line with the 26% YoY growth in Q2, while the earnings growth was marginally lower than Q2’s 17.5%. The Q3 2014 revenue and earnings performance is summarized in the table below.

Q3 2013

Q2 2014

Q3 2014

QoQ growth

YoY growth

Revenue (in millions of $)

395.79

476.03

498.04

4.6%

25.8%

EPS diluted ($)

0.44

0.40

0.50

25.0%

14.9%

Revenue growth was driven largely by accelerated growth in the ‘Media Delivery Solutions’ and continued strength in the ‘Performance and Security Solutions’ segment.

  • Media Delivery Solutions: Grew 22% YoY to contribute 46% of total revenue
  • Performance & Security Solutions: Grew 29% Y/Y to contribute 45% of revenue
  • Service & Support Solutions: Grew 32% Y/Y to contribute 9% of revenue

As noted in our Akamai Q3 2014 earnings preview, 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.

Akamai Q3 2014 profit margin analysis

The gross profit margin came in 68.1%, a 50 basis point contraction compared to Q2 2014 and 150 basis point expansion from Q3 2013. However, the operating income margin and net income margin continued to contract for the second straight quarter in a row.

Q3 2013

Q2 2014

Q3 2014

QoQ change

YoY change

Gross profit margin

66.6%

68.6%

68.1%

-0.5%

1.5%

Operating margin

25.1%

23.6%

24.1%

0.5%

-1.0%

Net Income margin

20.2%

15.3%

18.3%

3.0%

-1.8%

The gross profit margin continued to expand on a YoY basis, which was also seen in Q2 2014. However, the gross margin expansion was offset by a 27.5% YoY growth in operating expenses. The growth in operating expenses outpaced topline growth, leading to contractions in profit margins at the operating net levels.

The growth in the operating expenses was led by a 31% YoY growth in research and development expenses and 42% YoY growth in sales and marketing expenses, which was mainly on account of increased hiring in Q3, and along expectations as stated by the management in the Q2 2014 conference call.

The planned ramp up in operational expenses drove margin contractions, leading to a slower growth in earnings as compared to revenue growth.

Actual performance v/s Analyst estimates

Akamai beat analyst estimates on both the topline as well as bottomline. The company reported non-GAAP earnings of 62 cents on revenue of $498 million, higher than the analyst consensus estimate of 57 cents earnings and $491 million revenue. The company delivered an 8% earnings surprise for the quarter and 1.6% revenue beat. Akamai maintained its strong earnings record with the twelfth earnings surprise delivered time in the last 13 quarters, while also delivering a seventh consecutive revenue beat

Akamai Q4 2014 guidance

Akamai management issued the following guidance for Q4 2014.

High end

Low end

Average

Revenue (in Millions of $)

535

515

525

Gross profit margin

69%

69%

69%

EBITDA margin

43%

42%

42.5%

Non-GAAP depreciation (in Millions of $)

57

56

56.6

Non-GAAP operating margin

33%

32%

32.5%

Non-GAAP tax rate

34%

Non-GAAP EPS ($)

0.66

0.61

0.635

Using the midpoints of the Q4 2014 guidance, Q3 2014 performance and management’s commentary, we modelled Akamai’s Q4 2014 performance as shown below.

Q4 2014 (in millions of $, except per share numbers)

Non-GAAP

Revenue

525

EBITDA

227.125

Depreciation

56.5

operating Income

170.625

Tax (@32%)

54.6

Net Income

116.025

EPS diluted

0.64

Number of shares

180

A positive long term investment

The Q4 guidance midpoint implies a 20% YoY revenue growth and a 23% earnings growth over Q3 2013. The profit margins will improve once current investment cycle concludes, with the management reiterating its long term EBITDA margin range of 41%-45%. The high profitability, strong growth and reasonable valuations (LTM PE ratio of 31) make Akamai an attractive stock for the long term. Our Akamai stock analysis reflects our positive long term outlook on the stock, which was strengthened by the latest earnings report.

Show Full Article
5 2
Is this article helpful ?    


Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

show more

Comments on this article and AKAM stock

Do share this awesome post