A month has gone by since the last earnings report for Akamai Technologies (AKAM). Shares have added about 0.7% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Akamai Technologies due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Akamai Beats Q3 Earnings Estimates on Top-Line Growth
Akamai reported relatively healthy third-quarter 2022 results with year-year-year growth in revenues despite a challenging macroeconomic environment and adverse currency translation effects. Both the bottom line and top line beat the Zacks Consensus Estimate on solid demand trends.
Quarter Details
GAAP net income in the reported quarter was $108.2 million or 68 cents per share compared with $178.9 million or $1.08 per share in the year-ago quarter. The decline in GAAP earnings despite top-line growth was primarily attributable to higher operating expenses. Non-GAAP net income in the quarter was $200 million or $1.26 per share compared with $238.9 million or $1.45 per share a year ago. Non-GAAP earnings surpassed the Zacks Consensus Estimate by 3 cents.
Revenues of $881.9 million increased 2.5% year over year and beat the consensus estimate of $875 million. Growth in the Security and Compute businesses primarily contributed to the top line, which collectively improved 23% year over year. Region-wise, U.S. revenues were $461.1 million, up 2.7% year over year. International revenues were $420.8 million, up 2.3%.
By product groups, Security Technology Group revenues were $379.5 million, up 13.4% year over year, driven by growth in the application security business and solid performance from Guardicore. Revenues from Delivery aggregated $393.2 million, down 14.9% owing to non-renewals by some customers and continued deceleration in traffic growth among the largest customers. Compute revenues increased 71.5% year over year to $109.1 million, led by incremental contribution from the Linode acquisition and the addition of improved enterprise capabilities to the compute platform.
Non-GAAP operating margin contracted to 28% from 32% in the prior year. Adjusted EBITDA declined to $368.5 million from $396 million a year ago for a margin of 42%, down from 46%.
Cash Flow & Liquidity
In the first nine months of 2022, Akamai generated $933.2 million in cash from operating activities compared with $1,017.7 million in the prior-year period. As of Sep 30, 2022, the company had $457.8 million in cash and cash equivalents with $681.4 million of operating liabilities. During the reported quarter, Akamai repurchased 1.8 million shares for $163 million at an average price of $90.93 per share.
Guidance
For the fourth quarter of 2022, Akamai expects revenues between $890 million and $915 million with incremental contribution from Linode. It expects a non-GAAP operating margin of 27%. Non-GAAP earnings are envisioned in the range of $1.23-$1.30 per share.
For 2022, Akamai has narrowed its earlier revenue guidance and expects revenues between $3,580 million and $3,600 million, down from $3,570 million and $3,610 million expected earlier due to uncertain market conditions and challenging macroeconomic conditions. It expects a non-GAAP operating margin of 28%. Non-GAAP earnings are expected in the range of $5.23-$5.30 per share, down from earlier expectations of $5.19-$5.37.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
Currently, Akamai Technologies has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Akamai Technologies has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Akamai Technologies belongs to the Zacks Internet – Services industry. Another stock from the same industry, Etsy (ETSY), has gained 37% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.
Etsy reported revenues of $594.47 million in the last reported quarter, representing a year-over-year change of +11.7%. EPS of $0.58 for the same period compares with $0.62 a year ago.
For the current quarter, Etsy is expected to post earnings of $0.89 per share, indicating a change of -19.8% from the year-ago quarter. The Zacks Consensus Estimate has changed +2.2% over the last 30 days.
Etsy has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.
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