Web content delivery and security company Akamai (NASDAQ:AKAM) reported results in line with analyst expectations in Q2 FY2022 quarter, with revenue up 5.92% year on year to $903.3 million. Akamai made a GAAP profit of $119.5 million, down on its profit of $156.4 million, in the same quarter last year.
Is now the time to buy Akamai? Access our full analysis of the earnings results here, it's free.
Akamai (AKAM) Q2 FY2022 Highlights:
- Revenue: $903.3 million vs analyst estimates of $898.7 million (small beat)
- EPS (non-GAAP): $1.35 vs analyst estimates of $1.31 (3.21% beat)
- Free cash flow of $223.2 million, up 145% from previous quarter
- Gross Margin (GAAP): 61.6%, down from 62.4% same quarter last year
"Despite a continued challenging macro-economic environment and foreign exchange headwinds, Akamai delivered another quarter of solid results," 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 year, growing from quarterly revenue of $852.8 million, to $903.3 million.
Akamai's quarterly revenue was only up 5.92% year on year, which would likely disappoint many shareholders. But the revenue actually decreased again in Q2 by $315 thousand, compared to $1.71 million decrease in Q1 2022. While one-off fluctuations don't always have to be concerning, we have no doubt that shareholders would like to see the revenue rebound soon.
Ahead of the earnings results the analysts covering the company were estimating sales to grow 6.35% over the next twelve months.
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 61.6% in Q2.
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. This would be considered a low gross margin for a SaaS company and it has dropped significantly from the previous quarter, which is probably the opposite of what shareholders would like it to do.
Key Takeaways from Akamai's Q2 Results
With a market capitalization of $15.4 billion, more than $690.6 million 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.
We struggled to find many strong positives in these results. On the other hand, it was less good to see that the revenue growth was quite weak. Overall, it seems to us that this was a complicated quarter for Akamai. The company is flat on the results and currently trades at $95.49 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.