Akamai revenue growth continues to be driven by edge security

GAAP earnings per share was 75 cents per diluted share, a 15 percent jump compared to a year ago. It was the eighth straight quarter that earnings per share beat analyst expectations, according to Seeking Alpha.

Akamai continues to be viewed a content delivery network firm, but it has lucrative and fast growing cybersecurity and cloud services serving large corporations. Cloud security revenue rocketed 28% to $240 million compared to the first quarter of 2019. The total (which exceeded analysts’ expectations of $236 million) includes new income from acquired companies. No other revenue segment came close to the upward momentum of security deals. DDoS prevention, web application firewall (WAF) and bot management were the fastest growing services, but the company said it also saw a strong surge in bookings for its enterprise security solutions.

During his earnings conference call Tuesday, Akamai CEO Tom Leighton said that traffic on the company’s platform “increased dramatically in March” as customers moved more operations online.

“Despite the cancellation or postponement of major sporting events, like March Madness, and Champions League Soccer, our traffic increased by about 30 percent” in March, Leighton said. Traffic crested at 167 terabits per second, more than double the peak of a year ago.

Leighton said that demand for security and media services in the first quarter was so strong that it made up for revenue lost from travel, hospitality, and commercial and retail, all hard hit by COVID-19. He said Akamai is providing relief to those clients where appropriate, offered most often in the form of extended contracts.

The future impact of this move on the bottom line was not detailed, but company executives acknowledged that reworked contracts and elevated bad debt reserves knocked $5 million of revenues, mostly in March.

International revenue rose 16 percent, to $335 million, compared to the first quarter of last year, while U.S. revenue bobbed three percent, to $429 million.

Analysis

Having Fortune 500 clients cushions Akamai more than if it served mostly small and medium-sized businesses. But lengthening sales cycles are a reality for most non-defense companies today, and that could be a drag on performance looking forward. Also, after the devastation of 2008, it is conceivable that multiple household names could collapse, if, again, the coronavirus recession is deep.

The companies most affected are in the travel and e-commerce segments. Akamai noted that while some e-commerce firms are doing increased business, companies that have bricks and mortar operations are hurting. The potential exposure here is 16% of revenue from 900 customers globally. The 1Q write-down is less than 1% of overall revenue but could increase in coming months.

Can security growth continue to offset those declines? In the near term we believe so.

Akamai is well positioned to take advantage of the trend towards remote work with its edge-based Enterprise Application Access offering but needs to do more marketing to bring awareness of the availability of competitive VPN replacement services to customers. DDoS and other attack prevention and mitigation services will continue to grow-security issues have not abated during the pandemic, unfortunately. By the 4Q, however, the outlook will be highly dependent on consumer confidence – Akamai’s e-commerce and travel customers typically have their biggest impact on revenue at the end of the year.

Jim Davis, Principal Analyst, Edge Research Group

Article Topics

Akamai  |  CDN  |  earnings  |  security  |  Zero Trust