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Akamai (AKAM) Beats Earnings and Revenue Estimates in Q3

Akamai Technologies Inc.AKAM reported better-than-expected third-quarter 2015 results. Adjusted earnings (including stock-based compensation expense and amortization of capitalized stock-based compensation but excluding all other non-recurring items and related tax impact) of 53 cents per share surpassed the Zacks Consensus Estimate of 47 cents.

However, on a year-over-year basis, adjusted earnings declined by a penny. On a GAAP basis, earnings were 49 cents per share, down from 50 cents reported in third-quarter 2014, mainly due to increase in cost of revenues as well as operating expenses.

Akamai Technologies Inc. - Earnings Surprise | FindTheBest

Revenues

The company's third-quarter revenues of $551.03 million narrowly beat the Zacks Consensus Estimate of $551 million. Also, it grew 10.6% year over year primarily driven by robust performance across all its solutions.

Media delivery solutions revenues grew 5% year over year to $245 million backed by solid growth in the customer base.

Performance & security solutions revenues jumped 15% year over year to $263 million on the back of robust demand for the company's cloud security products.

Service & support system revenues increased 19% year over year to $43 million. Strong service attachment rates drove revenues along with increasing service offering upgrades.

Margins

The company's adjusted gross margin for the quarter improved 70 basis points (bps) to 68.8% from 68.1% in third-quarter 2014. However, adjusted operating margin contracted 300 bps to 22.3% mainly due to increased operating expenses as a percentage of revenues.

Further, in the quarter, the company's adjusted EBITDA was $222 million, up from $213 million a year ago. Adjusted EBITDA margin was 40%, down 300 bps from the prior-year quarter.

Balance Sheet & Cash Flow

Akamai exited the quarter with cash and cash equivalents of $256.5 million compared with $257.4 million on Jul 31, 2015. The company generated cash flow from operations of $182.6 million in the reported quarter while $546.4 million in the first nine months of 2015.

In the quarter, Akamai repurchased 1.1 million shares for $76 million. As of Sep 30, 2015, the company had $231 million remaining under its ongoing share repurchase authorization.

Fourth-Quarter Guidance

For the fourth quarter, Akamai expects revenues in the range of $557 million to $577 million, representing 6% to 10% year-over-year growth. The Zacks Consensus Estimate is pegged at $598 million.

Further, EBITDA margins are anticipated between 40% and 41%. Non-GAAP earnings per share are projected in the range of 60 cents to 64 cents. The Zacks Consensus Estimate for earnings stands at 53 cents.

Our Take

We believe that Akamai is likely to benefit from the rising demand for cloud infrastructure solutions, security, mobile products and online video. Additionally, the company's partnership with the likes of AT&T Inc T , International Business Machines Corp. IBM , Orange, Qualcomm Inc. QCOM , Swisscom, Korea Telecom, Türk Telekom and the recent alliance with Bangkok Bank should boost top-line growth. Additionally, the company's strong foothold in the web application business is expected to be a significant growth catalyst, going ahead.

However, Akamai is facing stiff competition and pricing pressure as non-traditional players like Amazon, Netflix, Verizon and Comcast enter the market and join the likes of Limelight Network and Packeteer.

Currently, Akamai has a Zacks Rank #3 (Hold).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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