Akamai Technologies, Inc. (
skid 15.7% ($6.53) in after hours trading on the heels of fourth
quarter results, in which the content delivery network solutions
provider failed to beat the Zacks Consensus Estimate of
However, earnings of 43 cents per share comfortably exceeded
the Zacks Consensus Estimate by 6 cents. Earnings per share
("EPS") include stock-based compensation expense and amortization
of capitalized stock-based compensation, but exclude amortization
of other intangibles, restructuring charges, acquisition related
costs and legal settlement charges
Earnings excluding all aforementioned charges and benefits
came at 54 cents per share, up 20.0% from 45 cents earned in the
year-ago quarter. Earnings also surged 25.6% sequentially and
were well above management's guided range of 48 cents to 52 cents
per share. The significant improvement in EPS was primarily
driven by strong revenues and operating margin growth.
Total revenues jumped 16.7% year over year and 9.4% quarter
over quarter to $377.9 million, which fell slightly short of the
Zacks Consensus Estimate. Total revenues also failed to beat the
mid-point of management's guided range of $373.0 million to
$385.0 million. The miss was primarily due to lower-than-expected
e-Commerce traffic level during the holiday season compared with
the year-ago quarter.
Revenues from content delivery solutions grew 11.0% year over
year and 5.0% sequentially. Cloud infrastructure solutions
increased 20.0% from the year-ago quarter and 12.0% sequentially.
Higher adoption of cloud infrastructure services (60% of the
total revenue) and increased demand for security solutions (5
times year-over-year growth) were the main revenue drivers in the
Industry wise, Enterprise was the fastest-growing vertical in
the quarter. Revenues jumped 27.7% year over year and 11.0%
sequentially to $52.7 million, driven by continuing shift to the
cloud-based applications and increasing demand for Akamai's
Commerce was the second fastest growing vertical, with
revenues increasing 16.8% from the year-ago quarter and 21.4%
from the previous quarter to $89.8 million. The strong growth was
driven by increasing demand for security as well as website
Revenues from Media & Entertainment increased 15.1% year
over year and 6.3% quarter over quarter to $158.1 million.
High Tech climbed 12.9% from the year-ago quarter and 5.9%
sequentially to $59.9 million, driven by higher software download
volumes and increasing sales of cloud infrastructure
Public Sector increased 14.4% year over year but declined 6.5%
sequentially to $17.4 million in the reported quarter. The
sequential decline resulted from the timing factor as several
government projects were completed in the last quarter.
Region wise, revenues (excluding impact of currency) from
North America (71% of total revenue) jumped 15.0% year over year
and 9.0% sequentially. International revenues (29% of total
revenue) jumped 22.0% on a year-over-year basis and 10%
sequentially in the quarter. Resellers represented 23% of total
revenues in the quarter.
Gross margin expanded 210 basis points (bps) year over year
and 230 bps sequentially to 68.1%. The strong growth was
primarily attributable to improving server network efficiency
that continues to pull down costs.
Total operating expenses as percentage of revenues surged 130
bps on a year over year basis and 20 bps sequentially to 45.1%.
The year-over-year growth in expenses was primarily due to higher
sales & marketing (S&M) expense, up 200 bps in the
quarter. Research & development (R&D) expense increased
70 bps in the quarter. However, general & administrative
expense (G&A) declined 20 bps in the reported quarter.
Sequentially, the modest growth in operating expenses was
driven by higher S&M, which increased 60 bps and fully offset
a 20 bps decline in both R&D and G&A, respectively. The
higher S&M expense reflects continued headcount investments
focused on sales capacity.
Adjusted earnings before interest, taxes, depreciation, and
amortization (EBITDA) margin increased 20 bps year over year and
50 bps sequentially to 45.8%. Operating margin expanded 80 bps
from the year-ago quarter and surged 210 bps sequentially to
25.3%. The strong growth was driven by higher gross margin base
and lower-than-expected increase in operating expenses.
Net income margin increased 50 bps on a year over year basis
and jumped significantly from 15.6% posted in the previous
quarter to 19.8%.
Balance Sheet & Cash Flows
Akamai exited the quarter with cash and cash equivalents
(including short-term marketable securities) of $437.6 million
compared with $465.2 million in the prior quarter. Akamai
generated cash flow from operations of $146.9 million in the
reported quarter versus $141.5 million in the previous quarter.
Akamai repurchased 800K shares for $30.0 million in the
Akamai expects revenues in the range of $352.0 million to
$362.0 million for the first quarter of 2013. This represents
13.0% to 16.0% year-over-year growth. Akamai expects GAAP gross
margin of approximately 73.0%. Operating expenses are projected
to be up about $4.0 million sequentially. Akamai expects adjusted
EBITDA margin to be in the range of 42.0% to 43.0% for the first
Earnings are expected to be between 50 cents and 52 cents per
share, including tax charge of $26 million to $29 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 superior content delivery
platform has been chosen by the likes of
News Corp. (
due to its ability to provide high-quality service at a much
lower rate compared to its peers. Akamai's dominance in the web
application business, where it serves companies such as
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 (its board of directors recently
authorized a $150.0 million extension of the 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.
Moreover, Akamai's first quarter top-line growth is expected
to be negatively impacted by foreign exchange headwind, difficult
comps and winding down of some unprofitable contracts. Thus, we
prefer to remain on the sidelines for the time being.
Currently, Akamai has a Zacks Rank #3 (Hold).
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