Akamai Technologies, Inc. (
reported second quarter 2013 earnings of 46 cents per share,
which jumped 24.3% from the year-ago quarter but declined 9.8%
from the previous quarter and met the high-end of management's
guided range of 44 cents to 46 cents per share.
Including stock-based compensation expense and amortization of
capitalized stock-based compensation, earnings were 37 cents per
share, which matched the Zacks Consensus Estimate.
Revenues jumped 14.1% year over year and 2.7% quarter over
quarter to $378.1 million, slightly ahead of the Zacks Consensus
Estimate. Revenues were higher than management's guided range of
$352.0 million to $362.0 million. Excluding Akamai's Advertising
Decision Solutions ("ADS") business, divested in late January,
revenues increased 18.0% year over year and 3.7% on a sequential
The strong growth in revenues was primarily driven by better
performances from most of the solutions. Revenues from Media
delivery solutions grew 13.5% year over year but declined a
modest 1.0% quarter over quarter to $179.4 million. The
sequential decline was primarily attributed to lower video
traffic due to shift of one large media customer from Akamai's
However, overall traffic growth remained strong for video,
gaming, and social media, while it slowed down for software
Performance & security solutions revenues jumped 19.4% year
over year and 7.2% on a sequential basis to $167.9 million. The
year-over-year growth was due to higher demand for Akamai's IP
Service & support systems achieved the strongest revenue
growth in the quarter, up 41.3% year over year and 14.4%
sequentially to $31.4 million.
Region wise, revenues from North America (71% of total revenue)
jumped 11.0% year over year and 4.0% sequentially. International
revenues (29% of total revenue) jumped 21.0% on a year-over-year
basis but remained flat sequentially in the quarter. Resellers
represented 20% of total revenue in the quarter.
Gross margin expanded 660 basis points (bps) year over year but
declined 30 bps sequentially to 67.0%. 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 110
bps on a year-over-year basis and 290 bps sequentially to 39.6%.
The year-over-year rise in expenses was primarily due to higher
sales & marketing (S&M) expense, up 90 bps in the
quarter. Research & development (R&D) expense increased
10 bps, while general & administrative expenses (G&A)
remained flat in the quarter.
Sequentially, the strong increase in operating expenses was due
to higher G&A expense, which increased 240 bps and a 90 bps
surge in S&M expense, which fully offset a 60 bps decrease in
Adjusted earnings before interest, taxes, depreciation, and
amortization (EBITDA) margin increased 60 bps on a year-over-year
basis but decreased 130 bps sequentially to 43.8%. Operating
margin expanded 550 bps from the year-ago quarter but declined
290 bps sequentially to 27.4%.
The strong year-over-year growth was driven by higher revenues
and gross margin base. The sequential decline was due to sharp
rise in operating expenses.
Net income as percentage of revenues was 17.1% compared with
14.4% in the year-ago quarter and 20.4% in the previous quarter.
Balance Sheet & Cash Flows
Akamai exited the quarter with cash and cash equivalents
(including short-term marketable securities) of $530.9 million
compared with $513.2 million in the prior quarter. Akamai
generated cash flow from operations of $129.7 million in the
reported quarter versus $103.0 million in the previous quarter.
The company repurchased 1.1 million shares for $42.5 million in
Akamai expects revenues in the range of $380.0 million to $392.0
million for the third quarter of 2013. This represents 15.0% to
18.0% year-over-year growth. Akamai expects gross margin to be in
the range of 76.0% to 77.0%. Operating expenses are projected to
be up about $8.0 million to $10.0 million sequentially.
Management expects adjusted EBITDA margin to be in the range of
42.0% to 44.0% for the third quarter.
Earnings are expected to be between 44 cents and 47 cents per
share, including tax charge of $42 million to $46 million. Akamai
forecasts capital expenditure (excluding equity-based
compensation) of approximately $65.0 million to $70.0 million for
the forthcoming quarter.
We believe that strong demand for cloud infrastructure solutions,
security, mobile products and online video will drive top-line
growth going forward. Akamai's products such as the Aura network
solutions have been chosen by the likes of
, Orange, Swisscom and Korea Telecom.
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 forward.
However, intense competition has kept pricing under tremendous
pressure, which is a significant headwind going forward. The
recent entry of
in the security solutions market will boost competition 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. This may hurt margins going
Nevertheless, Akamai continues to manage its server networks in
an efficient way, which is expected to reduce depreciation
expense going forward. This will further boost gross margins.
Moreover, aggressive share repurchase will boost its
profitability in 2013.
Currently, Akamai has a Zacks Rank #1 (Strong Buy).
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