Akamai Technologies, Inc. (NASDAQ:AKAM) is set to report fourth-quarter 2017 results on Feb 6.The company has delivered an average positive surprise of 4.32% in the last four quarters.
In the third quarter, Akamai reported earnings of 62 cents per share, which beat the Zacks Consensus Estimate of 59 cents per share. The figure slumped 9% from the year-ago quarter and remained flat on a sequential basis. Moreover, revenues increased 6% year over year to $621 million, beating the Zacks Consensus Estimate of $610 million.
We expect the huge level of network traffic catered to by Akamai’s cloud delivery platform to be a key top-line booster for the company. A growing customer base, Nominum’s acquisition, improvised portfolio of solutions and robust over-the top (OTT) content viewing segment are other positives.
Guidance & Estimates
For the fourth quarter of 2017, Akamai expects total revenues to be in the range of $638 million to $656 million, assuming 1.5 months of Nominum revenues. Non-GAAP earnings are expected in the range of 60 cents to 65 cents per share.
The Zacks Consensus Estimate for earnings is pegged at 63 cents per share. Revenues are estimated to be $647.92 million for the quarter.
The integration of SOASTA and Nominum is anticipated to negatively impact EBITDA margins in the near term. In 2018, EBITDA margins are expected to be in the mid-30% range and operating margin is expected to be in the lower 20% range.
Moreover, shares of Akamai have gained 40.6% in the past year, substantially outperforming the 17.6% rally of the industry it belongs to.
Factors to Influence Q4 Results
Akamai stated that it witnessed high level of network traffic on its platform during the quarter, which is anticipated to be a major tailwind for the company’s revenues.
During the quarter, the company completed the previously announced acquisition of Nomium.. This will help the company in expanding its presence among carrier and enterprise customers.
Moreover, the company is reported to be working with Morgan Stanley (NYSE:MS) to explore strategic alternatives, possibly including a sale. This strategic review initiative was taken by the company after hedge fund Elliott Management urged the company to take initiatives to maximize shareholder value.
The company released the State of the Internet/Security report in the quarter, which highlighted a risein the number of web application attacks on a year-over-year basis. We believe that the expanded security portfolio will help Akamai gain significant share in the security market.
The company had launched two products — Enterprise Threat Protector and Bot Manager Premier. Akamai expects revenues from the security business to exceed $1 billion within the next four to five years driven by strong adoption of Kona Site Defender, Prolexic, Bot Manager and Web Application Protector Product offerings.
Moreover, expansion of the security product portfolio will lower Akamai’s dependence on the media delivery solutions. Further, rapid growth in security is expected to offset loss of large customers in the content delivery network (CDN) space.
We believe that rising demand for cloud infrastructure solutions, security, mobile products and online video and adoption of cloud services on a large scale by data centers pose significant growth opportunity for Akamai.
However, declining revenue contribution from large customers in the Internet Platform group namely, Amazon.com (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Facebook, Google (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT) and Netflix (NASDAQ:NFLX) due to their do-it-yourself (DIY) initiatives remains a concern for the company.
What Does Our Model Say
According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.
Akamai has a Zacks Rank #3 and an Earnings ESP of +2.73%, which indicates a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Other Stocks to Consider
Here are some stocks you may also want to consider as our proven model shows that these have the right combination of elements to post an earnings beat this quarter.
The Trade Desk Inc. (NASDAQ:TTD) has an Earnings ESP of +4.78% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Facebook, Inc. (NASDAQ:FB) has an Earnings ESP of +2.28% and a Zacks Rank #2.
Tencent Holding Ltd. (OTC:TCEHY) has an Earnings ESP of +1.75% and a Zacks Rank #2.
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Akamai Technologies, Inc. (AKAM): Free Stock Analysis Report
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