Akamai (AKAM) Q2 Profits Hit Highest, Security, Computing Sales Rise

Akamai Technologies, Inc. AKAM, a global provider of content delivery network and cloud infrastructure services, reported better-than-expected second-quarter results. Non-GAAP earnings of $1.58 per share topped the Zacks Consensus Estimate by 4 cents.

Revenues rose 5% year over year to $979.58 million, surpassing the Zacks Consensus Estimate by $3 million. Growing customer engagement in the Security and Compute portfolio across various end markets was the primary driver of the outperformance. Integration of advanced AI capabilities to enhance customer experience is a tailwind.

Segment performance

Net sales of the Security segment increased 15.2% year over year to $498.7 million, beating our estimate of $497.8 million. Revenue growth from several products, including DDoS prevention, bot management, app and API security for account and content security, and zero trust enterprise security, drove the top line in this segment. The company is witnessing solid adoption of its Guardicore segmentation and web application solutions across industries.

German retailers such as Delife, Douglas, Wagner, a global energy company and a major airline in the United States selected Akamai’s security solutions in the quarter. The company completed the acquisition of noname security for $452.3 million. The acquisition has significantly improved the outlook for the fast-growing API security market.

The Delivery segment generated $329.4 million, down 13.2% year-over-year. The figure exceeded our estimate of $328 million. Macroeconomic and geopolitical headwinds led to a decline in traffic growth. Continued uncertainty is forcing customers to focus more on cost optimization and DIY solutions. However, the company still holds a leading position in the market and management expects traffic growth to slow in the near term.

The Calculate segment contributed $151.5 million in revenue, up 23.1% year over year. The figure beat our estimate of $149 million. The company closed multiple cloud computing deals during the quarter, including a major media and entertainment brand in the United States, one of Europe’s prominent cybersecurity companies, and the video brand of the largest telecommunications carrier in Latin America.

Financial position

In the June quarter, sales and marketing expenses rose to $139.03 million from $136.55 million in the year-ago quarter. Research and development expenses rose to $113.35 million from $99.04 million in the year-ago quarter.

In the second quarter, Akamai generated $431 million in cash from operations, compared to $366.3 million in the year-ago quarter. For the first six months of 2024, the company generated $307.1 million in cash, compared to $225.9 million in the year-ago period. The increase was primarily driven by improved profitability and a shift in performance-based employee compensation programs from cash-based to stock-based.

As of June 30, 2024, the Company had $448 million in cash and cash equivalents, with $2.4 billion in convertible senior notes. Capital expenditures were $167.1 million.

In the second quarter, the company, ranked No. 3 (hold), bought back 1.4 million shares worth $128 million of its total buyback authorization of $1.8 billion for fiscal year 2024.

Accompaniment

Management believes that challenging macroeconomic conditions and geopolitical unrest will remain a major concern for the coming quarters. In the third quarter, the Delivery segment is likely to benefit from modest traffic growth due to the Paris Olympics. Strong momentum across various end markets is expected to drive growth in the Security and Compute business.

For the third quarter of 2024, Akamai expects revenue in the range of $988-$1,008 million. Non-GAAP operating margin is projected at 29%. Non-GAAP earnings per share are projected in the range of $1.56-$1.62. Capital expenditures are expected to be 17% of revenues.

Buoyed by solid momentum across several segments, Akamai has raised its 2024 guidance. Revenues are now estimated at $3.97-$4.01 billion, up from the previously forecast range of $3.95-$4 billion. Non-GAAP earnings are now expected in the range of $6.34-$6.47 per share, up from the previously expected range of $6.20-$6.40. It expects a non-GAAP operating margin of 29%. Capital expenditures are likely to be around 16% of total revenues. Currency fluctuations are likely to have a negative impact of $20 million on fiscal 2024 earnings.

Stocks to consider

Arista Networks, Inc. ANET currently carries a Zacks Rank #1 (Strong Buy). In the last reported quarter, it delivered an earnings surprise of 8.25%. You can see The complete list of today’s Zacks #1 Rank stocks here.

The company is engaged in providing cloud networking solutions for data centers and cloud computing environments. The company offers 10/25/40/50/100 Gigabit Ethernet switches and routers optimized for next-generation data center networks.

Ubiquiti Inc. UI currently has a Zacks Rank #2 (Buy). The company offers a comprehensive portfolio of networking products and solutions for service providers and enterprises.

The excellent global business model, which is flexible and adaptive to changing markets, helps it to overcome challenges and maximize growth. The company’s effective management of its strong global network of over 100 distributors and master resellers has improved visibility into future demand and inventory management techniques.

CommScope Holding Company, Inc. COMM, currently ranked #1 by Zacks, delivered a surprise gain of 65.22% in the last reported quarter.

It is a leading provider of infrastructure solutions, including wireless and fiber solutions, for the core, access and edge layers of communications networks. The company has carved out a niche market for itself, enabling customers to scale network capacity, deliver improved network response time and performance, and simplify technology migration.

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