Akamai Technologies, Inc. (
reported first-quarter 2014 earnings of 47 cents per share
(including stock-based compensation expense and amortization of
capitalized stock-based compensation but excluded all other
non-recurring items and related tax impact), which increased
14.2% year over year and beat the Zacks Consensus Estimate by 3
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The year-over-year growth was primarily driven by robust revenue
and margin expansion in the quarter. Management provided strong
revenue outlook driven by anticipated healthy performance from
Akamai's media and security business segments.
Revenues jumped 24.1% year over year to $453.5 million, well
ahead of the Zacks Consensus Estimate of $439.0 million. Revenues
were higher than management's guided range of $426.0 to $430.0
million. The strong year-over-year growth in revenues was
primarily driven by robust performance of most of the solutions.
Media delivery solutions revenues grew 18.6% year over year to
$214.8 million. The growth was driven by robust traffic growth
due to high amount of software download and gaming patches by
Performance & security solutions revenues jumped 26.4% year
over year to $198.0 million. Prolexic (acquisition completed in
February) contributed approximately $7.0 million to revenues. The
strong year-over-year performance was driven by robust demand for
website and application acceleration solutions, as well as
security product offerings.
At the end of first quarter, Akamai's security solutions were
used by 867 customers, including 100 leading banks. More than 260
customers bought Akamai's flagship Kona site defender solution.
Including Prolexic, Akamai had 1250 customers at the end of first
Service & support systems witnessed the strongest
year-over-year revenue growth in the quarter, up 48.2% to $40.7
million. Strong service attachment rates and demand for major
live events drove revenues in the quarter.
Region-wise, revenues from North America (72.0% of revenues)
jumped 23.0% year over year. International revenues (28.0% of
revenues) jumped 24.0% on a year-over-year basis in the quarter.
Resellers represented 24.0% of the revenues in the quarter.
Gross margin expanded 220 basis points (bps) year over year to
69.2%. The strong growth was primarily attributable to improving
server network efficiency that continues to pull down costs.
Total operating expenses as a percentage of revenues surged 130
bps on a year-over-year basis to 38.3%. Total operating expenses
include stock-based compensation expense but exclude amortization
of intangible assets, depreciation & amortization,
restructuring charges and acquisition related costs.
The year-over-year rise in expenses was primarily due to higher
research & development (R&D), general &
administrative (G&A) and sales & marketing (S&M)
expenses, which increased 20 bps, 50 bps and 30 bps,
Adjusted earnings before interest, taxes, depreciation, and
amortization (EBITDA) margin decreased 60 bps on a year-over-year
basis to 44.9%, due to higher operating expenses. Operating
margin expanded 90 bps from the year-ago quarter to 30.9%. The
year-over-year growth was due to higher revenue base and modest
growth in operating expenses.
Net income (excluding stock-based compensation, amortization of
capitalized stock-based compensation, amortization of acquired
intangible assets, restructuring charges, acquisition related
costs and related tax effect) was $82.8 million or 55 cents per
share compared with $74.7 million or 50 cents in the year-ago
Balance Sheet & Cash Flow
Akamai exited the quarter with cash and cash equivalents
(including short-term marketable securities) of $698.1 million
compared with $673.9 million in the prior quarter. The company
generated cash flow from operations of $89.0 million in the
reported quarter versus $171.7 million in the previous quarter.
Akamai repurchased 2.0 million shares for approximately $116.0
million in the quarter. The company raised $655.0 million from
convertible debt offering in February.
Akamai expects revenues in the range of $464.0 to $478.0 million
for the second quarter of 2014. This represents 22.8% to 26.5%
year-over-year growth. However, revenue guidance is much better
than the Zacks Consensus Estimate of $414.0 million for the
Akamai expects gross margin (excluding stock-based compensation
and depreciation and amortization) to remain flat sequentially
and be in the range of 68.0% to 69.0%. Operating expenses are
projected to be in the range of $166.0 to $170.0 million.
Management expects adjusted EBITDA margin of approximately 42.0%
to 43.0% for the second quarter. Akamai expects to hire
additional sales representatives in the second quarter and the
latter half of the year.
Although this along with continued investments in Prolexic is
expected to negatively impact EBITDA margin for the rest of the
2014, management reiterated its long-term EBITDA margin outlook
of 40.0% to 45.0%.
EPS is expected to be between 53 cents and 57 cents, including
tax charge of $50.0 to $55.0 million. Akamai forecasts capital
expenditure to be in the range of $90.0 to $95.0 million for the
We believe that strong demand for cloud infrastructure solutions,
security, mobile products and online video will drive top-line
growth. Akamai's partnership with the likes of
International Business Machines (
, Orange, Swisscom, Korea Telecom and Türk Telekom is expected to
boost top-line growth, going forward.
Moreover, Akamai's superior content delivery platform has been
selected by the likes of
due to its ability to provide high-quality service at a much
lower rate compared to its peers. Additionally, the company's
dominance in the web application business is expected to be a
significant growth catalyst, going ahead.
However, intense competition has kept pricing under tremendous
pressure, which is a significant headwind, going forward. In
order to differentiate its products, Akamai is significantly
investing in R&D and is also expanding its sales force
through new appointments, which will hurt margin for the rest of
2014. This remains a major concern.
Currently, Akamai has a Zacks Rank #3 (Hold).