Akamai Technologies (AKAM) Down 5.9% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Akamai Technologies (AKAM). Shares have lost about 5.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Akamai Technologies due for a breakout? 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 catalysts.

Akamai Beats Q2 Earnings Estimates on Higher Revenues

Akamai reported relatively healthy second-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. However, shares trended down post earnings release as the company trimmed its earlier guidance for the year.

Quarter Details

GAAP net income in the reported quarter was $119.5 million or 74 cents per share compared with $156.5 million or 94 cents 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 $216.4 million or $1.35 per share compared with $232.8 million or $1.42 per share a year ago. The non-GAAP earnings exceeded the guidance despite an adverse tax impact of 7 cents per share. Non-GAAP earnings surpassed the Zacks Consensus Estimate by 4 cents.

Revenues of $903.3 million increased 5.9% year over year and beat the consensus estimate of $897 million. Growth in the Security and Compute businesses primarily contributed to the top line. Region-wise, U.S. revenues were $477.2 million, up 6% year over year. International revenues were $426.2 million, up 6%.

By product groups, Security Technology Group revenues were $380.7 million, up 17% year over year, driven by growth in the application security business and solid performance from Guardicore. Revenues from Delivery aggregated $416.7 million, down 11% owing to non-renewals by some customers. Compute revenues increased 74% year over year to $106 million, led by incremental contribution from the Linode acquisition.

Non-GAAP operating margin contracted to 29% from 32% in the prior year. Adjusted EBITDA improved to $388.3 million from $385.7 million a year ago for a margin of 43%, down from 45%.

Cash Flow & Liquidity

For the first six months of 2022, Akamai generated $563.9 million of cash from operations compared with $627.9 million in the prior-year period. As of Jun 30, 2022, the company had $426.7 million in cash and cash equivalents with $186.9 million of operating liabilities. During the reported quarter, Akamai repurchased 1.6 million shares for $165 million at an average price of $100.8 per share.

Guidance

For the third quarter of 2022, Akamai expects revenues between $868 million and $883 million with incremental contribution from Linode. Adjusted EBITDA margin is expected to be 41%. Akamai expects a non-GAAP operating margin of 27%. Non-GAAP earnings are envisioned in the range of $1.21-$1.26 per share.

For 2022, Akamai currently expects revenues between $3.57 billion and $3.61 billion, down from $3.62 billion and $3.67 billion expected earlier due to uncertain market conditions and challenging macroeconomic conditions. Akamai expects a non-GAAP operating margin of 28-29%. Non-GAAP earnings are expected in the range of $5.19-$5.37 per share, down from earlier expectations of $5.32-$5.44.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

The consensus estimate has shifted -5.42% due to these changes.

VGM Scores

Currently, Akamai Technologies has a nice Growth Score of B, 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 is part of the Zacks Internet - Services industry. Over the past month, Sohu.com (SOHU), a stock from the same industry, has gained 3.7%. The company reported its results for the quarter ended June 2022 more than a month ago.

Sohu.com reported revenues of $194.78 million in the last reported quarter, representing a year-over-year change of -4.7%. EPS of $0.25 for the same period compares with $0.55 a year ago.

Sohu.com is expected to post a loss of $0.59 per share for the current quarter, representing a year-over-year change of -290.3%. Over the last 30 days, the Zacks Consensus Estimate has changed +4.5%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Sohu.com. Also, the stock has a VGM Score of F.

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