Akamai’s profit increases but falls short of earnings forecasts, and provides cautious guidance, causing stock to drop

Akamai Technologies Inc. shared a variety of results for the fourth quarter today, surpassing the Street’s predictions on earnings but coming up short on revenue. The company experienced growth in cloud computing and security, but there was a decline in its legacy content delivery network business. Guidance for the next quarter was also underwhelming.

Additionally, a new initiative called Gecko was announced by the company. This effort involves pushing cloud computing capabilities closer to the network edge, aiming to power more responsive workloads. Despite this, investors were noticeably unconvinced, leading to a stock drop of more than 3% in late trading.

An adjusted value of $1.69 per share was reported by Akamai before certain costs, which exceeded the company’s own guidance range and Wall Street’s forecast. However, while revenue rose 7% from a year earlier, it fell just shy of the Street’s consensus estimate. Although sluggish, the company increased its profitability somewhat, with a net income of $161 million for the quarter, up 25% from a year earlier.

In terms of revenue, Akamai disclosed that its security segment saw $471 million in sales, the content delivery business pulled in $389 million, and the compute segment achieved revenue of $135 million. These figures didn’t fully meet the expectations set by the Street.

Akamai also reported its full-year fiscal 2023 results, posting total revenue of $3.812 billion, with security and compute representing 60% of the company’s total sales and growing 17% from the prior year.

Even with the rapid growth of the security and cloud businesses, Akamai fell short of investors’ expectations in terms of its guidance. For the first quarter of fiscal 2024, revenue and earnings expectations were below the target set by Wall Street. Looking to the full year, Akamai’s projected revenue growth again failed to meet Wall Street’s estimates.

Akamai Chief Executive, Tom Leighton, expressed satisfaction with the company’s profitability and revenue growth in 2023 and outlined plans for 2024 centered around driving profitability, expanding security offerings, and extending the cloud computing platform.

A separate announcement detailed Akamai’s cloud computing plans. The initiative, called Gecko, includes embedding compute with support for virtual machines in 100 cities by the end of the year.

Additionally, Akamai is leveraging its legacy content delivery network in geographically distributed locations to bring full-stack cloud computing capabilities. Developers will benefit from reduced latencies to build more responsive applications.

According to analyst Holger Mueller, Akamai’s strategic acquisitions are the primary reason for the company’s growth in cloud and security businesses. Mueller highlighted the need for Akamai to grow its traditional business or push cloud and security harder to offset the continued decline in that business.

Prior to today’s decline, Akamai’s stock had risen 5% year-to-date. In the last 12 months, it rallied by just over 46%.

Photo: Akamai

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