Content delivery network (CDN) provider Akamai Tech (AKAM
70.54, +1.21, +1.75%) sits higher on Wednesday following the company’s better than
expected fourth quarter report, which overshadowed a change at Chief Financial
Officer as well as underwhelming revenue growth guidance for the first quarter
and the year ahead.
AKAM announced a fourth quarter beat last night on earnings per share (EPS) of $1.07. Adjusted EBITDA for the fourth quarter was $301 mln, a 23% increase from fourth quarter 2017 adjusted EBITDA of $245 mln.
Revenues grew 8.3% to $713.36 mln on 9% year/year growth in Web Division to $385 mln and Media and Carrier Division revenue for the fourth quarter of $328 mln, up 8% year/year and up 9% when adjusted for foreign exchange. Cloud Security Solutions revenue for the fourth quarter was $185 mln, up 36% year/year and up 38% when adjusted for foreign exchange, and revenues from the Internet Platform Customers division for the fourth quarter were $43 mln, down 14% year/year or when adjusted for foreign exchange.
Non-GAAP income from operations for the fourth quarter was $201 mln, a 26% increase from fourth quarter 2017 non-GAAP income from operations of $159 mln. Non-GAAP operating margin for the fourth quarter was 28% up 4 percentage points from the same period last year.
What’s more, Akamai and Mitsubishi UFJ Financial Group (MUFG 5.27, -0.04, -0.75%) announced an expansion of their relationship through the establishment of a joint venture, the Global Open Network (GO-NET), and their plans to offer a new blockchain-based online payment network enabling next-generation transaction security, scale, and responsiveness.
Akamai also announced a planned transition in leadership within the company's finance organization. Ed McGowan, Senior Vice President of Finance, will succeed Jim Benson as Executive Vice President and Chief Financial Officer, effective on March 1. After nine years at Akamai (including seven as CFO), Mr. Benson has decided to retire from Akamai in order “to pursue his next set of challenges.” An extended transition period, throughout which Mr. Benson will serve as an Executive Advisor, will accompany the succession.
As to the guidance, it appears investors are employing the mentality that headwinds are mostly accounted for and that initial expectations for the year could still be adjusted as the months progress. Specifically, AKAM management gave first quarter guidance of EPS between $1.00-1.05 on revenues of $690-704 mln. Management also offered that the company expects to see some normal sequential revenue decline in the first quarter, as the company typically sees due to seasonality, though that decline may perhaps seem a bit more pronounced this year in comparison to the company’s very strong holiday season this past quarter. In addition, AKAM expects some foreign exchange impact from the strengthening U.S. dollar at current spot rates; foreign exchange fluctuations are expected to have a negative impact of approximately $14 mln compared to last year.
Akamai also gave initial expectations for FY19; the company sees EPS of $4.00-4.15 on revenues between $2.81-2.855 bln. Furthermore, for the full year, Akamai expects adjusted EBITDA margins of approximately 41% and expects 2019 non-GAAP operating margins of approximately 28%. The company also expects to see a slight decline in both EBITDA and operating margins in Q2 and Q3 with an improvement in Q4.
Management also commented that the company has a "clear line-of-sight" to achieving non-GAAP operating margins of 30% in 2020 while continuing to invest in innovation and new products.
On the whole, while initial guidance perhaps wasn’t as robust as investors had hoped, it appears that the outlook may be good enough for now with the potential for raises still on the horizon. Management outlined some headwinds into the year, namely FX, a lack of large events, and tough comparisons from a year ago. Commentary suggests that a stronger 2020 will come to fruition, with the hope that increased traffic from the Olympics and the 2020 U.S. Presidential election as well as more direct-to-consumer offerings could provide stronger growth.
The stock met resistance in its 200-day SMA (71.18) but still sits slightly higher, extending its recent four-session advance to circa 5.8%.
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