Akamai Technologies, Inc. (
AKAM
)
reported earnings of 30 cents per share in the first quarter of
2012, beating the Zacks Consensus Estimate by a couple of cents.
However, earnings remained flat on a year-over-year basis. Reported
earnings include stock-based compensation expense, but exclude
amortization of capitalized stock-based compensation, amortization
of other intangible charges and restructuring charges.
Quarter Details
Total revenue increased 15.8% year over year to $319.4 million
and was also higher than the Zacks Consensus Estimate of $311.0
million. Total revenue also surpassed the higher end of
management's guided range of $305.0 million to $313.0 million. The
better-than-expected result was primarily driven by continued solid
growth across its business segments.
Commerce was the fastest-growing (up 21.0% year over year)
segment in the quarter, followed by Enterprise (up 16.9%), High
Tech (up 15.5%), Media & Entertainment (up 13.8%) and Public
sector (up 8.9%). Akamai continued to benefit from higher adoption
of cloud infrastructure services (57% of the total revenue),
increased demand for optimization, performance and security
solutions and strong traffic growth on a year-over-year basis.
Region wise, revenue from North America climbed 18.0%, while
international revenues jumped 10.0% on a year-over-year basis in
the quarter. Revenue for the quarter witnessed robust growth across
Europe and other economies, except for Japan.
Gross profit increased 16.1% year over year to $216.9 million in
the reported quarter. Gross margin expanded 20 basis points (bps)
year over year to 67.9% in the same period due to lower
depreciation expense.
Total operating expenses increased 27.9% year over year to
$140.5 million. The year-over-year growth in expenses was primarily
attributable to higher general & administrative expense (up
26.9% year over year), research & development expense (up 38.8%
year over year) and sales & marketing expense (up 26.1% year
over year).
Operating income on a non-GAAP basis was $76.4 million versus
$77.0 million in the year-ago quarter. Operating margin in the
quarter was 23.9% compared with 27.9% in the year-ago quarter.
Adjusted EBITDA increased 10.0% year over year to $143.0 million in
the quarter. EBITDA margin stood at 45% in the quarter.
Akamai exited the quarter with cash and cash equivalents
(including marketable securities and restricted marketable
securities) of $404.5 million compared with $849.2 million in the
prior quarter. Akamai generated cash flow from operations of $92.5
million in the reported quarter versus $135.9 million in the
previous quarter.
During the first quarter, Akamai repurchased approximately
223,000 shares at an average price of $35.45 per share, totalling
$8.0 million. Akamai's board of directors authorized an additional
$150 million for share repurchase, which is expected to begin from
May, 2012.
Guidance
Akamai expects revenue in the range of $322.0 million to $330.0
million for the second quarter of 2012. Akamai expects gross margin
to decline on a sequential basis. Akamai expects adjusted EBITDA
margin within the range of 41% to 42.0%. Operating expense is
expected to increase by approximately $11.0 million from the first
quarter due to higher costs related to acquisitions.
Earnings is expected to be between 36 cents and 38 cents per
share, including tax charge of $22 million to $27 million, based on
a GAAP tax rate of about 40% to 41%. Currently, the Zacks Consensus
Estimate (including stock-based compensation) for the second
quarter is pegged at 29 cents per share.
Akamai forecasts capital expenditure (excluding equity-based
compensation) of approximately $65.0 million to $70.0 million for
the forthcoming quarter.
Our Take
We believe that Akamai's first quarter result reflects growing
pressure on margins, particularly due to intense competition
Level 3 Communications Inc. (
LVLT
)
,
Limelight Networks, Inc. (
LLNW
)
and carriers such as
AT&T Inc. (
T
)
and
Verizon Communications (
VZ
)
, who are developing their own content delivery network. Moreover,
increasing operating expenses due to higher costs related to
acquisitions also remains a concern in the near term. These are
expected to hurt revenue growth going forward.
During the first quarter conference call, Akamai also announced
the retirement of its current Chief Executive officer (
CEO
) by the end of 2013. We believe this transition will remain an
overhang over the stock going forward.
However, we believe that strong demand for cloud infrastructure
solutions, security products, aggressive share repurchase and
strategic partnerships are positives for the stock over the long
term. Thus, we maintain our Neutral recommendation on a long-term
basis (6-12 months). Currently, Akamai has a Zacks #3 Rank, which
implies a Hold rating on a short-term basis.
AKAMAI TECH (
AKAM
): Free Stock Analysis Report
LIMELIGHT NETWK (
LLNW
): Free Stock Analysis Report
LEVEL 3 COMM (
LVLT
): Free Stock Analysis Report
AT&T INC (
T
): Free Stock Analysis Report
VERIZON COMM (VZ): Free Stock Analysis Report
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