Akamai Reports ‘Superb’ Q1, So Why Are Shares Sinking?

Akamai (AKAM) has revealed a top-and-bottom-line beat for the first quarter, with Q1 Non-GAAP EPS of $1.20 beating forecasts by $0.04; and revenue of $764.3M (+8.2% Y/Y) beating by $14.55M.

However, the stock is currently trading down 4% in Wednesday’s pre-market trading.

“Akamai reported superb 1Q results and 2Q guidance that was well above the Street’s expectations, but below hyped up views of certain investors heading into the print” explained Needham analyst Alex Henderson.

Exposure to retail and travel verticals is also a significant risk for AKAM right now, says Henderson, with Travel/Hospitality and Retail/Commercial customers representing 4% and 16% of revenue, respectively.

Nonetheless the Needham analyst reiterated his AKAM buy rating with a $112 price target. “While conditions could worsen, we see potential for upside… we believe COVID could accelerate the tailwinds behind CDN [content delivery network] growth including greater workforce mobility, OTT viewership, and e-commerce” he explained.

In particular, strong traffic growth and enterprise security bookings offset the loss of multiple live sport streaming events and pressure in the travel/retail verticals.

“We achieved excellent results in the first quarter driven by continued strength in our security solutions and stronger than expected traffic growth” said Dr. Tom Leighton, CEO of Akamai.

“Akamai’s Intelligent Edge Platform is uniquely positioned to help the Internet scale quickly and is a lifeline for organizations and people around the globe during this challenging time.”

Looking ahead, Akamai pulled CY20 guidance based on limited visibility into how a recovery would play out. Management also gave ‘anemic’ guidance for the second quarter, which Oppenheimer analyst Timothy Horan described as ‘conservative.’

He notes that AKAM produced $153 million of FCF, a 10% beat, and has $2.2B of cash and equivalents on its balance sheet.

Overall the company has a cautiously optimistic Moderate Buy outlook from the Street. It’s average analyst price target stands at $110 (8% upside potential), with shares currently trading up 18% year-to-date. (See AKAM stock analysis on TipRanks).

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