Cloud Business In Focus As Akamai Reports Q1 Results

Akamai is slated to report its Q1 FY’23 results on May 9. We estimate that Akamai’s revenue will come in at about $916 million for the quarter, slightly ahead of consensus estimates and about 1% higher compared to last year. We estimate that earnings will stand at close to $1.20 per share, compared to a consensus of $1.18 per share. So what are some of the trends that are likely to drive Akamai’s results? See our dashboard analysis on Akamai Earnings Preview for more details on how Akamai’s revenues and earnings are likely to trend for the quarter.

We expect Akamai’s security business to remain a key driver of its business over Q1, largely helping to offset declines in the delivery business. For perspective, the business grew by about 10% year-over-year during Q4 2022, while delivery sales fell by almost 12%. We will be closely watching Akamai’s progress in the computing space, which the company has increased exposure to following its acquisition of Infrastructure as a Service (IaaS) provider Linode in February 2022. Earlier this year, the company unveiled the Akamai Connected Cloud, putting it in direct competition with deep-pocketed hyper scalers such as Amazon
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AWS, Microsoft Azure, and Google. The company is also planning to boost capital expenditures meaningfully to build out its cloud data centers, projecting that it could spend roughly 21% of revenues as Capex for 2023, up from about 13% in 2022.

We remain bullish on Akamai stock for a couple of reasons. Akamai’s valuation is quite reasonable. The company has guided for Non-GAAP earnings of between $5.40 to $5.60 per share for this year, translating into forward earnings multiple of under 15x. Akamai could see a meaningful upside if it executes well in the computing market – which is sizeable and lucrative. The company could have some advantages, given its large network of around 350,000 edge servers across 4,100 locations, which are located away from metropolitan centers, giving the company considerable geographic scale. Our $97 price estimate for AKAM stock is about 18% ahead of the current market price. See our analysis on Akamai Valuation: Is AKAM Stock Expensive Or Cheap? for more details on what’s driving the company’s valuation and how it compares with peers.

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