Akamai Misses, Margins Lag - Analyst Blog
27 Ottobre 2011 - 12:45PM
Zacks
Akamai Technologies, Inc.
(AKAM) reported earnings of 25 cents per
share in the third quarter of 2011, which missed the Zacks
Consensus Estimate by a penny. However, earnings per share (EPS)
increased 8.7% from the 23 cents per share reported in the year-ago
quarter.
Reported EPS includes stock-based
compensation expense and amortization of capitalized stock-based
compensation but excludes amortization of other intangible charges
and restructuring charges.
The year-over-year growth was
primarily driven by strong revenues; partially offset by higher
expenses, which dragged margins in the reported quarter.
Operating
Performance
Gross profit (including stock-based
compensation) increased 7.3% year over year to $188.6 million in
the reported quarter. However, gross margin contracted 230 basis
points (bps) year over year to 67.0% in the same period.
Adjusted EBITDA (including
stock-based compensation) increased 7.3% year over year to $122.4
million in the quarter. Adjusted EBITDA margin was 43.4% compared
with 45.0% in the year-ago quarter.
Total operating expenses increased
5.6% year over year to $118.9 million. The year-over-year growth in
expenses was primarily attributed to higher general &
administrative expense (up 19.0% year over year), which fully
offset declines in research & development expense (down 4.9%
year over year) and sales & marketing expense (down 2.0% year
over year) in the quarter.
Operating income on a non-GAAP
basis was $69.7 million versus $63.2 million in the year-ago
quarter. Operating margin in the quarter was 24.7% compared with
24.9% in the year-ago quarter.
Net income was $46.6 million in the
reported quarter, up 6.4% year over year. Net income margin
declined 80 bps on a year-over-year basis to 16.5% in the
quarter.
Revenue
Total revenue in the quarter was
$281.9 million, up 11.2% year over year and surpassed the Zacks
Consensus Estimate of $279.0 million. Total revenue also managed to
achieve the higher end of management’s guided range of $273.0
million to $283.0 million.
The better-than-expected result was
primarily driven by continued solid growth for value added
solutions. Revenue from Akamai’s fastest-growing Enterprise
vertical grew 30.0% year over year to $39.0 million, as more
customers adopted cloud services for their businesses.
Commerce increased 23.0% year over
year to $61.4 million, driven by strong demand for Dynamic Site
Acceleration solutions (DSA) and security solutions. The company
signed approximately 100 DSA deals and more than 30 customers
purchased Akamai’s security solutions during the quarter.
Public sector climbed 5.0% year
over year to $15.5 million and Media & Entertainment jumped
5.0% to $117.7 million. Revenue from the High Tech vertical grew
3.0% year over year to $48.2 million in the reported quarter.
Region wise, revenue from North
America climbed 10.0% year over year. International revenues jumped
6.0% year over year. Sales through resellers were 19.0% of the
total revenue in the third quarter.
Balance Sheet
As of September 30, 2011, cash and
cash equivalents (includes marketable securities and restricted
marketable securities) were $687.6 million compared with $497.3
million, as of June 30, 2011.
Akamai generated cash flow from
operations of $116.3 million in the reported quarter versus $111.8
million in the previous quarter. During the third quarter, Akamai
repurchased approximately 7.0 million shares for $155.0 million, at
an average price of $22.75 per share.
Guidance
Akamai expects revenue in the range
of $303.0 million to $315.0 million (6% to 11% year-over-year
growth) for the fourth quarter of 2011. Favorable foreign exchange
rate is expected to have an impact of approximately $2.0 million on
a year-over-year basis.
Akamai expects gross margins to
remain flat on a sequential basis. For the fourth quarter, Akamai
expects operating expenses to increase approximately $10.0 million
year over year. Akamai expects adjusted EBITDA margin in the range
of 43% to 44%.
EPS is expected to be between 37
cents and 41 cents, including tax charge of $25 million to $30
million, based on a full-year GAAP tax rate of about 36%.
Currently, the Zacks Consensus Estimate (including stock-based
compensation) for the fourth quarter is pegged at 31 cents per
share.
Akamai forecasts capital
expenditure (excluding equity-based compensation) of approximately
$50 million for the forthcoming quarter. For fiscal 2011, capital
expenditure is expected to be 16% of revenues.
Our Take
We believe that increased usage of
cloud computing technology ensures higher adoption of value-added
solutions, which will drive strong top-line growth going forward.
Moreover, strong demand for security products, aggressive share
repurchase and strategic partnerships are positives for the stock
over the long term.
However, weak traffic growth
remains a concern, as Akamai continues to face intense pricing
pressure from competitors like Level 3 Communications Inc.
(LVLT), Limelight Networks, Inc.
(LLNW) and carriers such as
AT&T Inc. (T) and
Verizon Communications (VZ), who
are developing their own content delivery network. We believe this
will hurt revenue growth going forward.
We maintain our Neutral
recommendation on a long-term basis (6-12 months). Currently,
Akamai has a Zacks #3 Rank, which implies a Hold rating on a
short-term basis.
AKAMAI TECH (AKAM): Free Stock Analysis Report
LIMELIGHT NETWK (LLNW): Free Stock Analysis Report
LEVEL 3 COMM (LVLT): Free Stock Analysis Report
AT&T INC (T): Free Stock Analysis Report
VERIZON COMM (VZ): Free Stock Analysis Report
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