Shares of Akamai Technologies (AKAM, Financial) jumped over 15% on Tuesday as the online content delivery network surpassed earnings estimates.
Akamai reported third-quarter revenue of $670 million, up 7% from the year-ago quarter and above the $664 million analysts were expecting. It beat earnings estimates by 11 cents, reporting 94 cents per share, up 47% from the year-ago quarter.
The Massachusetts-based company provides cloud services that allow speedier video streaming and e-commerce transactions, ensuring efficient delivery and optimization. Industry estimates predict an 18% compound annual growth rate for the web application firewall market.
Akamai is leveraging the demand for cloud security solutions as the segment witnessed a 37% surge in revenues to $169 million. Given the increasing adoption of cloud services and Akamai’s exceptional growth in the segment, the company seems well positioned to benefit.
In its other segments, Web Division revenue came in at $357 million, up 8% from the year-ago quarter, and Media and Carrier Division revenue was $313 million, up 6%.
"We are very pleased with our excellent results in the third quarter, which includes 37% year-over-year growth in our security business and tremendous growth in our earnings," CEO Tom Leighton said. "We are also pleased to report our fourth consecutive quarter of non-GAAP operating margin improvement. We are well on our way to achieving our 30% margin goal in 2020, while continuing to invest in innovation and new products to drive future growth.”
Moreover, the company has been able to garner record traction from the gaming sector for software downloads. While the loss of customers such as Netflix (NFLX, Financial) and Amazon (AMZN, Financial) weighed on the top line, the acquisition of clients such as Fortnite in the gaming segment helped offset it.Ă‚
From a pipeline perspective, Akamai is expanding its focus to cater to the changing landscape of the industry. New emerging technologies such as blockchain and internet of things are long-term value adds to the company’s portfolio.
Another major development was the board’s approval of a new $1.1 billion share repurchase program.
For the fourth quarter, the company issued revenue guidance of $692 million to $709 million and adjusted diluted earnings per share of 97 cents $1.03.
From a valuation perspective, the company floats a forward price-earnings ratio of 16.47 compared to the industry median of 25. Moreover, its three-year revenue growth rate stands at 10.2%, above the industry median of 6%.
All told, Akamai appears to be well positioned in the market and should be equipped to handle and leverage the changing industry dynamics. Given its stupendous growth in the cloud segment as well as stable growth in its other segments, the stock might be in for further upside.Ă‚
Disclosure: I do not own any of the stocks mentioned.
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