Akamai boosts profitability but misses earnings forecasts and offers light guidance, sending stock lower

CLOUD

Akamai Technologies Inc. posted mixed fourth-quarter results today, beating the Street’s forecasts on earnings but missing on revenue, with cloud computing and security growth offset by a decline in its legacy content delivery network business. Guidance for the coming quarter came up light, too.

The company also announced a new effort called Gecko that sees it pushing its cloud computing capabilities closer to the network edge, in order to power more responsive workloads. However, investors were apparently less than convinced, as the company’s stock was down more than 3% in late trading, having dropped just over 2% during the regular session earlier today.

Akamai reported earnings before certain costs such as stock compensation of $1.69 per share, ahead of its own guidance range of $1.57 to $1.62 per share and also Wall Street’s forecast of $1.59 per share. Meanwhile, Akamai’s revenue rose 7% from a year earlier, to $995 million, just shy of the Street’s consensus estimate of $999 million. Despite the sluggish revenue growth, the company did increase its profitability somewhat, posting net income for the quarter of $161 million, up 25% from a year earlier.

Breaking down those revenue numbers, the company said its security segment did $471 million in sales during the quarter, up 18% from a year earlier but just below the Street’s call for $475 million. The content delivery business pulled in $389 million in sales, down 6% from a year earlier and below the forecast of $392 million. Finally, the compute segment, which represents its nascent cloud computing infrastructure business, delivered revenue of $135 million, up 20% from a year earlier and above the consensus estimate of $132 million.

Akamai also reported its full-year fiscal 2023 results, posting total revenue of $3.812 billion, up 5% from a year earlier. Security and compute were said to represent 60% of the company’s total sales, growing 17% from the prior year.

Although the security and cloud businesses are growing fast, the company was unable to meet investor’s expectations in terms of its guidance. For the first quarter of fiscal 2024, Akamai said it’s eying revenue of between $980 million and $1 billion, which falls short of Wall Street’s $993 million target at the midpoint. In addition, officials said they’re looking for earnings of between $1.59 and $1.64 per share, versus the Street’s call for $1.59.

Looking to the full year, Akamai said it’s hoping to achieve revenue growth of between 4% and 6%, which would imply $4.08 billion in total sales. Wall Street is aiming higher though, at $4.11 billion.

Akamai Chief Executive Tom Leighton (pictured) said the company capped off an “excellent” year by delivering very strong profitability. “We were very pleased with our Security and Cloud Computing results in 2023 which now represent 60% of total revenue,” the CEO said. “Looking to 2024, we plan to continue driving profitability in delivery, expanding our market leading security offerings, and extending our cloud computing platform to the edge to provide customers with better performance at a lower cost.”

Akamai detailed its cloud computing plans in a separate announcement that was posted alongside its financial results. The company said today it’s launching a new initiative called Gecko, through which it will enable cloud computing capabilities such as compute and storage at the edge of the network. The move gives it a theoretical advantage over traditional players such as Amazon Web Services Inc. and Microsoft Corp.

The company first unveiled its cloud computing ambitions in 2022 when it acquired the infrastructure-as-a-service platform provider Linode LLC for about $900 million. It followed several months later with the launch of its Connected Cloud offering, and said at the time it aims to become the most “widely distributed” cloud infrastructure platform in the world.

With the Gecko initiative announced today, Akamai is leveraging its legacy content delivery network, which is used by media customers to host content in thousands of locations all over the world. By hosting content closer to customers, Akamai speeds up access times to various applications and websites.

Now, it’s bringing full-stack cloud computing capabilities to those same locations. Developers can benefit from lower latencies to build more responsive applications than ever before, the company said. In its pitch, it said the service would be ideal for workloads such as artificial intelligence, multiplayer gaming, financial services, social media and content streaming.

Leighton told analysts on a conference call that Gecko will embed compute with support for virtual machines in 100 cities by the end of the year. At launch, it has already deployed Gecko-architected regions in underserved locations such as Hong Kong; Kuala Lumpur, Malaysia; Queretaro, Mexico; Johannesburg, South Africa; Bogota, Colombia; Denver, Colorado; Houston, Texas; Hamburg, Germany; and Marseille, France.

Akamai’s stock had risen 5% year-to-date prior to today’s decline. In the last 12 months, it has rallied by just over 46%.

Photo: Akamai