Web content delivery and security company Akamai (NASDAQ:AKAM) reported results in line with analysts' expectations in Q2 CY2024, with revenue up 4.7% year on year to $979.6 million. The company expects next quarter's revenue to be around $998 million, in line with analysts' estimates. It made a GAAP profit of $0.86 per share, improving from its profit of $0.84 per share in the same quarter last year.
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Akamai (AKAM) Q2 CY2024 Highlights:
- Revenue: $979.6 million vs analyst estimates of $977.6 million (small beat)
- Adjusted Operating Income: $281.5 million vs analyst estimates of $279.2 million (small beat)
- EPS: $0.86 vs analyst expectations of $0.94 (8.2% miss)
- Revenue Guidance for Q3 CY2024 is $998 million at the midpoint, roughly in line with what analysts were expecting
- The company slightly lifted its revenue guidance for the full year from $3.99 billion to $3.99 billion at the midpoint
- Gross Margin (GAAP): 58.9%, down from 60.2% in the same quarter last year
- Free Cash Flow of $309.8 million, up 73.9% from the previous quarter
- Market Capitalization: $14.11 billion
Founded in 1999 by two engineers from MIT, Akamai (NASDAQ:AKAM) provides software for organizations to efficiently deliver web content to their customers.
Content Delivery
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 5.6% annualized revenue growth over the last three years has been weak, and its sales came in at $979.6 million this quarter.
Akamai's quarterly revenue was only up 4.7% year on year, which might disappoint some shareholders. On top of that, its revenue decreased again in Q2 by $7.39 million, following the same trend as its $8.05 million decrease in Q1 CY2024. While one-off fluctuations aren't always concerning, we have no doubt that shareholders would like to see its revenue rebound soon.
Next quarter's guidance suggests that Akamai is expecting revenue to grow 3.4% year on year to $998 million, slowing down from the 9.5% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 4.7% over the next 12 months before the earnings results announcement.
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Cash Is King
If you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.
Akamai has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company's free cash flow margin averaged 23% over the last year, quite impressive for a software business.
Akamai's free cash flow clocked in at $309.8 million in Q2, equivalent to a 31.6% margin. This quarter's result was good as its margin was 11.3 percentage points higher than in the same quarter last year, but we wouldn't put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends are more important.
Over the next year, analysts' consensus estimates show they're expecting Akamai's free cash flow margin of 23% for the last 12 months to remain the same.
Key Takeaways from Akamai's Q2 Results
We struggled to find many strong positives in these results. Overall, this was a weaker quarter for Akamai. The stock traded up 4.4% to $95.60 immediately following the results.
So should you invest in Akamai right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.