Web content delivery and security company Akamai (NASDAQ:AKAM) reported results ahead of analyst expectations in the Q4 FY2022 quarter, with revenue up 2.48% year on year to $927.8 million. Akamai made a GAAP profit of $128.8 million, down on its profit of $160.5 million, in the same quarter last year.
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Akamai (AKAM) Q4 FY2022 Highlights:
- Revenue: $927.8 million vs analyst estimates of $904.8 million (2.54% beat)
- EPS (non-GAAP): $1.37 vs analyst estimates of $1.26 (8.7% beat)
- Free cash flow of $230.7 million, down 15% from previous quarter
- Gross Margin (GAAP): 61.4%, down from 64.1% same quarter last year
"We are pleased with our fourth quarter results which were driven by strong seasonal traffic, the continued success of our security solutions and the growth of our cloud computing solutions", said Dr. Tom Leighton, Akamai's chief executive officer.
Founded in 1999 by two engineers from MIT, Akamai (NASDAQ:AKAM) provides software for organizations to efficiently deliver web content to their customers.
The amount of content on the internet is exploding, whether it is music, movies and or e-commerce stores. Consumer demand for this content creates network congestion, much like a digital traffic jam which drives demand for specialized content delivery networks (CDN) services that alleviate potential network bottlenecks.
Sales Growth
As you can see below, Akamai's revenue growth has been unimpressive over the last two years, growing from quarterly revenue of $846.3 million in Q4 FY2020, to $927.8 million.
Akamai's quarterly revenue was only up 2.48% year on year, which might disappoint some shareholders. On top of that, revenue increased $45.9 million quarter on quarter, a strong improvement on the $21.4 million decrease in Q3 2022, and a sign of acceleration of growth, which is very nice to see indeed.
In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.
Profitability
What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Akamai's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 61.4% in Q4.
That means that for every $1 in revenue the company had $0.61 left to spend on developing new products, marketing & sales and the general administrative overhead. While it improved significantly from the previous quarter this would still be considered a low gross margin for a SaaS company and we would like to see the improvements continue.
Key Takeaways from Akamai's Q4 Results
Sporting a market capitalization of $13.8 billion, more than $1.11 billion in cash and with positive free cash flow over the last twelve months, we're confident that Akamai has the resources it needs to pursue a high growth business strategy.
It was good to see Akamai outperform Wall St’s revenue expectations this quarter. That feature of these results really stood out as a positive. On the other hand, revenue growth was quite weak. Overall, this quarter's results were not the best we've seen from Akamai. The company is up 2.52% on the results and currently trades at $90 per share.
Akamai may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.
One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.
The author has no position in any of the stocks mentioned.