Akamai's (NASDAQ:AKAM) Q4 Earnings Results: Revenue In Line With Expectations But Stock Drops

Full Report / February 13, 2024

Web content delivery and security company Akamai (NASDAQ:AKAM) reported results in line with analysts' expectations in Q4 FY2023, with revenue up 7.2% year on year to $995 million. On the other hand, the company expects next quarter's revenue to be around $990 million, slightly below analysts' estimates. It made a non-GAAP profit of $1.69 per share, improving from its profit of $1.37 per share in the same quarter last year.

Akamai (AKAM) Q4 FY2023 Highlights:

  • Revenue: $995 million vs analyst estimates of $999.7 million (small miss)
  • EPS (non-GAAP): $1.69 vs analyst estimates of $1.61 (4.7% beat)
  • Revenue Guidance for Q1 2024 is $990 million at the midpoint, below analyst estimates of $995.4 million
  • Free Cash Flow of $255.3 million, up 57.8% from the previous quarter
  • Gross Margin (GAAP): 60.5%, down from 61.6% in the same quarter last year
  • Market Capitalization: $19.33 billion

Founded in 1999 by two engineers from MIT, Akamai (NASDAQ:AKAM) provides software for organizations to efficiently deliver web content to their customers.

When streaming videos to a large number of viewers, operating a high traffic ecommerce site or a gaming portal, the server providing the content can get overwhelmed by the number of requests, resulting in a slow response time, dropped connections and frustrated customers. Using Akamai’s Content Delivery Network, organizations can provide quality and uninterrupted access to websites or applications to their customers, even at a really large scale.

Akamai operates a network of servers around the world and uses them to store copies of web content owned by its customers on servers closest to the user, to improve download speed. By moving web content closer to users, Akamai also helps to prevent cybercriminals from hijacking internet traffic, which is more vulnerable when transmitted over long distances.

For example, many customers visit online shopping sites during the holiday season to access exclusive offers on days like Black Friday. To cope with the enormous volume of traffic experienced during this period, Akamai works in the background to automatically check the location of every user accessing the shopping site and serves them the website from the Akamai server geographically closest to them, without the user noticing anything. This means users in the UK can enjoy the same web experience as users in the US when accessing a website located in the US.

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.

Akamai competes with content delivery network providers such as Cloudflare (NYSE:NET), Google (NASDAQ:GOOG) (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), and Microsoft (NASDAQ:MSFT) as well as innovators in edge computing such as Fastly (NYSE:FSLY).

Sales Growth

As you can see below, Akamai's revenue growth has been unimpressive over the last two years, growing from $905.4 million in Q4 FY2021 to $995 million this quarter.

Akamai Total Revenue

Akamai's quarterly revenue was only up 7.2% year on year, which might disappoint some shareholders. We can see that revenue increased by $29.53 million in Q4, which was roughly the same as in Q3 2023.

Next quarter's guidance suggests that Akamai is expecting revenue to grow 8.1% year on year to $990 million, improving on the 1.3% year-on-year increase it recorded in the same quarter last year.


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's left after paying for servers, licenses, technical support, and other necessary running expenses, was 60.5% in Q4.

Akamai Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.60 left to spend on developing new products, sales and marketing, and general administrative overhead. Akamai's gross margin is poor for a SaaS business and we'd like to see it start improving.

Cash Is King

If you've followed StockStory for a while, you know that 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's free cash flow came in at $255.3 million in Q4, up 10.7% year on year.

Akamai Free Cash Flow

Akamai has generated $618.4 million in free cash flow over the last 12 months, a solid 16% of revenue. This strong FCF margin stems from its asset-lite business model, giving it optionality and plenty of cash to reinvest in its business.

Key Takeaways from Akamai's Q4 Results

We struggled to find many strong positives in these results. Akamai missed Wall Street's revenue estimates and guidance for next quarter also came in weaker than expected. The company is down 5.6% on the results and currently trades at $118.2 per share.

Is Now The Time?

When considering an investment in Akamai, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.

Although Akamai isn't a bad business, it probably wouldn't be one of our picks. Its , and analysts don't see anything changing. And while its very efficient customer acquisition hints at the potential for strong profitability, unfortunately, its gross margins show its business model is much less lucrative than the best software businesses.

Akamai's price-to-sales ratio based on the next 12 months is 4.8x, suggesting that the market has lower expectations of the business, relative to the high growth tech stocks. We can find things to like about Akamai and there's no doubt it's a bit of a market darling, at least for some. But we are wondering whether there might be better opportunities elsewhere right now.

Wall Street analysts covering the company had a one-year price target of $120.95 per share right before these results (compared to the current share price of $118.20).

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