Akamais (AKAM) Q2 Earnings: Is Disappointment In Store?

Akamai Technologies Inc. (NASDAQ:AKAM) is set to release second-quarter 2017 earnings on Jul 25. Notably, the company has beaten the Zacks Consensus Estimate in three of the trailing four quarters, with an average positive surprise of 1.49%.

Last quarter, the company posted a positive earnings surprise of 1.92%. Adjusted earnings (including stock-based compensation expense and amortization of capitalized stock-based compensation) of 53 cents per share beat the Zacks Consensus Estimate by a penny.

Moreover, revenues of $609.2 million beat the Zacks Consensus Estimate of $605 million. It rose almost 7.3% from the year-ago quarter (up 8% adjusted for foreign exchange) but declined 1.1% from the previous quarter.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Akamai shares have massively underperformed the S&P 500 on a year-to-date basis. While the index gained 10.7%, the stock lost 21.5%.

The underperformance can be attributed to headwinds related to do-it-yourself (DIY) initiatives by large Internet companies (Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Facebook (NASDAQ:FB), Google (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT), and Netflix (NASDAQ:NFLX)), which are hurting its media business. Moreover, intensifying competition and pricing pressure are other concerns.

Further, continuing investments are also expected to hurt EBITDA margin, which is expected to touch the lower end of 37-39% range in the second quarter. Foreign exchange fluctuations are also likely to weigh heavily on its top line.

Additionally, newly launched products like Bot Manager, Image Manager, Enterprise Application Access (EAA) and the Enterprise Threat Protector (ETP) are expected to take some more time to contribute positively to top-line growth.

Nevertheless, Akamai’s strong foothold in the web applications domain apart from the rising demand for cloud infrastructure solutions, security, mobile products and online video is a key catalyst.

Earnings Whispers

Our proven model does not conclusively show that Akamai is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: Akamai’s Earnings ESP is +2.27%. This is because the Most Accurate estimate of 45 cents is higher than the Zacks Consensus Estimate of 44 cents per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Akamai carries a Zacks Rank #5 (Strong Sell). We caution against stocks with a Zacks Rank #4 (Sell) and 5 going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies that, as per our model, have the right combination of elements to post an earnings beat this quarter:

Cypress Semiconductor Corporation (NASDAQ:CY) with an Earnings ESP of +11.11% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lam Research Corporation (NASDAQ:LRCX) with an Earnings ESP of +1.33% and a Zacks Rank #1.

CGI Group (NYSE:GIB) with an Earnings ESP of +5.71% and a Zacks Rank #1.

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