Akamai (NASDAQ:AKAM) Reports Q3 Revenue In Line With Estimates

Full Report / November 02, 2021
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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.

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

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.

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.

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 slow over the last year, growing from quarterly revenue of $792.8 million, to $860.3 million.

Akamai Total Revenue

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.


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.

Akamai Gross Margin (GAAP)

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

Sporting a market capitalization of $17.1 billion, more than $1.91 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.

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.

Is Now The Time?

When considering Akamai, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. We cheer for everyone who is making the lives of others easier through technology, but in case of Akamai we will be cheering from the sidelines. Its revenue growth has been very weak. And while its very efficient customer acquisition hints at the potential for strong profitability, unfortunately 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 twelve months is 4.8, suggesting that the market does have lower expectations of the business, relative to the high growth tech stocks. While we have no doubt one can find things to like about the company, we think there might be better opportunities in the market and at the moment don't see many reasons to get involved.

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