Akamai Technologies, Inc. (
reported earnings of 51 cents per share, which jumped 41.7% from
the year-ago quarter and 2.0% from the previous quarter. Earnings
met the mid-point of management's guided range of 50 cents to 52
cents per share.
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Including stock-based compensation expense and amortization of
capitalized stock-based compensation, earnings were 42 cents per
share, much better than the Zacks Consensus Estimate of 34 cents.
The positive surprise was primarily driven by strong revenue
growth and margin expansion in the quarter.
Revenues jumped 15.2% year over year but declined 2.6% quarter
over quarter to $368.0 million, slightly ahead of the Zacks
Consensus Estimate. Revenues were also ahead of 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 18.1% year over year
but remained flat on a sequential basis.
The strong growth in revenues was primarily driven by better
performance from most of the solutions. Revenues from Media
delivery solutions grew 16.9% year over year and 3.6% quarter
over quarter to $181.2 million, primarily driven by higher
Performance & security solutions revenues jumped 16.9% year
over year but declined 3.9% on a sequential basis to $156.6
million. The year-over-year growth was due to higher demand for
Akamai's security solutions. Service & support systems
achieved the strongest revenue growth in the quarter, up 34.8%
year over year and 2.9% sequentially to $27.5 million.
Region wise, revenues from North America (70% of total revenue)
jumped 12.0% year over year but decreased 4.0% sequentially.
International revenues (30% of total revenue) jumped 26.0% on a
year-over-year basis and 3.0% sequentially in the quarter.
Resellers represented 20% of total revenue in the quarter.
Gross margin expanded 330 basis points (bps) year over year and
90 bps sequentially to 75.6%. 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 250
bps on a year-over-year basis but declined 390 bps sequentially
to 36.7%. The year-over-year growth in expenses was primarily due
to higher sales & marketing (S&M) expense, up 170 bps in
the quarter. Both research & development (R&D) and
general & administrative expenses (G&A) increased 50 bps
in the quarter.
Sequentially, the strong decline in operating expenses was due to
lower S&M expense, which decreased 560 bps and fully offset a
60 bps increase in R&D and 120 bps surge in G&A expense.
Adjusted earnings before interest, taxes, depreciation, and
amortization (EBITDA) margin increased 50 bps on a year-over-year
basis but decreased 70 bps sequentially to 45.1%. Operating
margin expanded 80 bps from the year-ago quarter and surged 480
bps sequentially to 38.9%. The strong growth was driven by higher
revenue and gross margin base.
Net income as percentage of revenues was 20.4% compared with
15.5% in the year-ago quarter and 19.3% in the previous quarter.
Balance Sheet & Cash Flows
Akamai exited the quarter with cash and cash equivalents
(including short-term marketable securities) of $513.2 million
compared with $437.6 million in the prior quarter. Akamai
generated cash flow from operations of $103.0 million in the
reported quarter versus $146.9 million in the previous quarter.
Akamai repurchased 1.1 million shares for $40.0 million in the
Akamai expects revenues in the range of $368.0 million to $378.0
million for the second quarter of 2013. This represents 15.0% to
18.0% year-over-year growth. Akamai expects gross margin of
approximately 76.0%. Operating expenses are projected to be up
about $9.0 to $11.0 million sequentially. Akamai expects adjusted
EBITDA margin to be in the range of 42.0% to 43.0% for the second
Earnings are expected to be between 44 cents and 46 cents per
share, including tax charge of $40 million to $43 million. Akamai
forecasts capital expenditure (excluding equity-based
compensation) of approximately $75.0 million to $80.0 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. Akami'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
News Corp. (
due to its ability to provide high-quality service at a much
lower rate compared to its peers. Additionally, Akamai's
dominance in the web application business is a significant growth
catalyst going forward.
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 ($119.0 million remains under the
current program) will boost its profitability in 2013.
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. This may hurt margins going forward.
Currently, Akamai has a Zacks Rank #3 (Hold).