Web content delivery and security company Akamai (NASDAQ:AKAM) reported results in line with analyst expectations in Q3 FY2021 quarter, with revenue up 8.51% year on year to $860.3 million. Akamai made a GAAP profit of $178.9 million, improving on its profit of $158.6 million, in the same quarter last year.
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Akamai (AKAM) Q3 FY2021 Highlights:
- Revenue: $860.3 million vs analyst estimates of $852.4 million (0.92% beat)
- EPS (non-GAAP): $1.45 vs analyst estimates of $1.39 (4.61% beat)
- Free cash flow of $273.4 million, up 22.3% from previous quarter
- Gross Margin (GAAP): 63.1%, down from 64.2% same quarter last year
"Akamai delivered another excellent quarter, highlighted by the continued very strong growth of our security business, which now accounts for nearly 40% of our overall revenue," 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.
Today, more people are moving their business online, which is placing a lot of demand on the global internet network. As the number of functionalities included in websites and apps also grows, so does the need for platforms that help to deliver a seamless website experience to users.
Sales Growth
As you can see below, Akamai's revenue growth has been slow over the last year, growing from quarterly revenue of $792.8 million, to $860.3 million.
Akamai's quarterly revenue was only up 8.51% year on year, which would likely disappoint many shareholders. But the growth did slow down compared to last quarter, as the revenue increased by just $7.5 million in Q3, compared to $10.1 million in Q2 2021. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.
Analysts covering the company are expecting the revenues to grow 6.8% over the next twelve months, although estimates are likely to change post earnings.
There are others doing even better than Akamai. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 400% since the IPO in December. 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, licences, technical support and other necessary running expenses was at 63.1% in Q3.
That means that for every $1 in revenue the company had $0.63 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 Q3 Results
With a market capitalization of $17.1 billion, more than $1.91 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.
Akamai beat both EPS and revenue estimates even if the latter just narrowly. Overall, these were pretty decent results, the company is up 2.96% and currently trades at $108.25 per share. The company is up 2.72% on the results and currently trades at $108 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.