Akamai Q3 2014 Earnings Preview

  • Akamai is scheduled to report its Q3 2014 earnings after the market close tomorrow.
  • The street expects the company to report earnings per share of 57 cents on revenue of $490.15 million.
  • We expect the company to beat the consensus estimates, and our Akamai stock analysis assigns the stock a positive rating.

Akamai Q3 2014 earnings preview

Akamai Technologies (NASDAQ:AKAM), the largest content distribution services provider is scheduled to report its Q3 2014 results after the market close on Oct 29. The current analyst consensus estimate is Non-GAAP earnings per share (EPS) of 57 cents on quarterly revenue of $490.15 million. The company is set to see continued growth, as the demand for online security and content delivery services will rise over the coming years. We today look into the company’s historical performance, earnings history and analyst expectations going into the Q3 2014 earnings results.

Akamai operating segments

Akamai reports its operations under three operating segments; media delivery solutions, performance and security solutions and service & support solutions. The media delivery solution segment, mainly compromising of Akamai’s content delivery network, is the largest contributor to Akamai topline as seen in the chart below.

Akamai revenue by segment contribution

The Media delivery solutions and Performance & security solutions segments contribute over 90% of Akamai’s revenue and meaningful growth in these segments will help to drive Akamai’s overall topline growth.

Akamai has seen broad-based topline growth across all three of its operating segments.

Akamai segmental revenue growth

The service and support solutions segment, though the fastest growing segment at Akamai currently contributes less than 10% of Akamai’s revenues and hence has lesser impact on the overall topline growth. In the meantime, Akamai will benefit from growth in the media delivery solutions market and also the security solutions segments.

Demand for High definition to drive Akamai content delivery revenues

Markets and Markets projects the content delivery network (CDN) market will grow from $3.71 billion this year to $12.16 billion by 2019, implying a compounded annual growth rate (CAGR) of 26.3% from 2014 to 2019. Akamai is the largest player in the CDN market with CDN revenue of $827 million over the last twelve months. The segment is a major contributor to Akamai revenues with a 47% contribution to LTM revenue. Any meaningful growth in this market will help to drive overall topline growth of Akamai.

Rise in Security threats to drive Akamai performance and security solutions

Akamai and its acquired security division Prolexic last week released their state of the internet – security report for Q3 2013. The report highlighted the increase in security threats on the internet. With the increased security attacks the demand for the security solutions will continue to rise. Akamai, once again happens to be a major beneficiary from the growth in the online security space, having derived $780 million (44%) of its LTM revenues from its performance and security segments.

Akamai management stated in the Q2 2014 conference call their intention to invest in the business in order to benefit from the growth in the industry, which will continue to incremental growth over the coming years.

With the above understanding of Akamai operations and management’s focus on growth, let’s look at the analyst estimates for Q3 2014 and the earnings history of Akamai.

Akamai earnings history

Akamai has beaten analyst consensus estimates in 7 out of the last 8 quarters with an average earnings surprise of 4.6% and average revenue beat of 1.8%. The earnings history over the last 8 quarters is summarized in the table below.

EPS estimate Actual EPS Revenue estimate Actual revenue Earnings surprise Revenue beat
Q3 2012







Q4 2012







Q1 2013







Q2 2013







Q3 2013







Q4 2013







Q1 2014







Q2 2014







Source: Estimize

Akamai Q3 2014 analyst estimates

The analyst consensus estimate for Q3 2014 is for Akamai to report earnings per share of 57 cents on revenue of $490.15 million. The consensus estimates imply earnings growth of 14%YoY and revenue growth of 23.7% YoY. The slower growth in earnings, in relation to revenue, is in line with the management’s focus of investing into the business leading to margin contractions over the coming quarters.

In conclusion, given the strong growth in the CDN and online internet security markets, Akamai is primed to benefit over the coming quarters. However, the management’s focus on investing ahead of the coming growth could see earnings growth trail revenue growth over the coming quarters. Given the strong earnings history, the strong business dynamics and the management’s balance between profitability and growth, we expect the company to report ahead of analyst estimates in Q3 2014.

Our Akamai stock analysis assigns the Akamai stock a buy rating, with a current target price of $67, implying an upside 21% from the last closing price on October 27.

Virendra Singh Chauhan Virendra Singh Chauhan   on Amigobulls :

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.

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