Akamai Racks Up Revenue Making Cloud Faster And Safer

Akamai Technologies, a provider of content delivery network and cloud infrastructure services, is riding a wave of open-ended technology trends to steady growth.

As companies and their customers do more business online and via the cloud, demand for faster online user experiences and greater levels of security is mounting, and each of those developments fits directly intoAkamai 's ( AKAM ) wheelhouse.

The company's system of servers and other equipment that accelerates online content delivery and bolsters security against cyberattacks is in increasing demand, Chief Financial Officer James Benson says, and it has boosted revenue throughout 2014 and positioned the firm for the year ahead.

"The secular tailwinds are going to remain," Benson told IBD.

Akamai posted a third-quarter profit of $91.2 million, up from $79.8 million a year earlier, on $498 million in revenue. Its top line was up 26%. Adjusted earnings per share -- excluding stock-based compensation, acquisition-related charges and other special items -- climbed 24% year over year to 62 cents.

'Right Direction'

Analysts polled by Thomson Reuters, on average, forecast EPS of 64 cents for the fourth quarter on sales of nearly $529 million. For all of 2014, they anticipate sales of nearly $1.96 billion, 24% ahead of 2013. Analysts forecast full-year EPS of $2.42, a 20% jump.

"I absolutely see the trends continuing to be strong (and) going in the right direction" for Akamai, B. Riley analyst Sameet Sinha said.

Akamai is the No. 2 company by market cap afterEquinix ( EQIX ) in IBD's Internet-Network Solutions industry group, which ranks No. 50 out of 197 groups. The next largest players are three highly rated firms:F5 Networks ( FFIV ),Rackspace Hosting ( RAX ) andSolarWinds ( SWI ).

Akamai's Media Delivery Solutions category posted a revenue increase of 22% for the third quarter. More double-digit growth lies ahead as people increasingly weave online activities into their daily routines, Benson says.

Akamai's global network of servers stores copies of online content in order to expedite delivery to its clients' customers. Those end users experience relatively few video streaming interruptions and faster downloads because Akamai's services effectively route them around Internet congestion, Benson says. Akamai also provides a range of software updates such as the routine upgrades issued for products likeApple 's (AAPL) iPads.

"We believe it will continue," Benson said, referring to the robust demand for Akamai's media services. The business, he added, "has been a nice growth accelerant for the company."

At the same time, as corporate clients of myriad stripes -- from online retailers to banking companies -- capitalize on cloud-based service and handle more customer transactions online, they want higher levels of security to guard against hackers and data breaches.

Headlines about breaches at banks such asJPMorgan Chase (JPM) and retailers likeHome Depot (HD) have called attention to the need for cybersecurity and lifted demand for Akamai's services, Benson says.

What Akamai provides in this regard are firewalls for Web applications and added layers of protection around clients' data centers. The company, he says, detects breaches at the edge of its network, "far from customers' data centers. ... (and) we thwart the attacks."

Akamai's Performance and Security Solutions segment generated 29% year-over-year revenue growth in the third quarter.

Benson says that Akamai does about 70% of its business in the U.S., but he added that its international operations, in Asia and Europe, are growing at a faster rate. He cites strong demand for its services in Japan, Korea and Singapore.

Sinha says that Akamai should benefit from solid demand as its clients recognize that they must defend against security threats and as end users demand high-level online video, gaming and social media.

"They have major tailwinds at their back," Sinha said.

Colby Synesael, an analyst at Cowen & Co., says that gaming and social media should continue to boost Akamai. "Clearly, we're seeing acceleration in media delivery," he said. "That's really where they have outperformed this year."

He expects growth on those fronts to build into long-term trends. "That's the bull case for this story," Synesael said.

Tough Field

All of that noted, Akamai's story is not free of headwinds.

The company has formidable competition that includesLimelight Networks (LLNW),Level 3 Communications (LVLT) andVerizon Communications (VZ).

It could also lose some ground with one of its most prominent clients, Apple, Synesael says. Apple, which accounts for 6% of Akamai's revenue by Synesael's estimation, is building its own internal content delivery network.

"The concern is, are they going to shift more in-house in 2015?" Synesael said of Apple, adding that other Akamai clients could make similar moves.

After reporting third-quarter results, Akamai executives conceded to analysts that because the firm's media business is based on traffic volumes, its growth from one quarter to the next could be bumpy, given that gaming and software releases, as well as the adoption of new social media and video platform upgrades, tend to vary.

But over the course of several coming quarters, Benson expects that favorable tech trends will continue to advance in Akamai's favor.

"We are not opportunity constrained," he said.

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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