By Sam Boughedda
Akamai Technologies (NASDAQ:AKAM) beat profit and revenue expectations when it reported earnings after the close on Tuesday, but its share price is down over 5% premarket.
The reported fourth-quarter earnings of $1.37 per share, $0.11 better than the analyst estimate of $1.26. Revenue for the quarter came in at $928 million versus the consensus estimate of $904.74M.
Revenue rose 2% year-over-year, with security and compute revenue representing 55% of the total. Security revenue for the fourth quarter was $400M, up 10% year-over-year, with delivery revenue at $415M, down 12% year-over-year. Compute revenue came in at $112M, up 61% year-over-year.
The company said its positive fourth-quarter results were driven by strong seasonal traffic, the continued success of its security solutions, and the growth of its cloud computing solutions.
Dr. Tom Leighton, Akamai's chief executive officer, commented: "As we look forward to 2023, we are optimistic about our leadership position as the most widely distributed cloud platform with leading solutions for delivery, security and cloud computing."
However, according to RBC Capital analysts, the "quarter and guidance itself was fine and arguably better-than-feared," but they believe the major story of the earnings call was Akamai shifting its story from Security mix-shift to Compute mix-shift.
The firm downgraded the stock to Sector Perform from Outperform, cutting the price target to $85 from $100 per share in a note Wednesday.
"While Q4 results were in line (leading shares flat after market), the major story of the earnings call in our view was the clear change in strategy to going all-in on Linode/Compute (as Security growth slows) backed by significant Compute OpEx (headcount) and CapEx plans in CY23. We shift to the sidelines as we believe this move alters the risk-reward profile, and we would wait for evidence it can pay off before getting back involved," wrote analysts.
William Blair analysts told investors in a note that Akamai reported financial results for the fourth quarter that "easily exceeded" expectations for revenue, adjusted EBITDA, and non-GAAP EPS.
"Akamai reported a strong fourth quarter that demonstrated that despite the competitive nature of the delivery business, Akamai still is the 800-pound gorilla in the room and will be called upon when traffic requirements demand premier performance on a global scale," said analysts.
"We expect operating margin to move back toward the 30% target next year as Akamai moves third-party cloud compute costs back onto its own infrastructure. Management is confident in Akamai's ability to compete in the over $100 billion compute market with its globally distributed architecture as the foundation given increasing demands for compute at the edge."