Akamai Technologies (AKAM, Financial) saw its shares rise by 11% after delivering a solid Q2 report. This performance helped the content delivery network (CDN) provider recover from the previous quarter's slump. AKAM had faced challenges in Q1 due to slowing internet traffic, which is critical for its business operations.
In Q2, delivery revenue dropped by 13% year-over-year to $329 million due to continued weak traffic. However, the company had already cautioned about short-term challenges, so investors were not surprised by the underwhelming performance. Instead, they focused on several positive developments.
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AKAM expects a modest year-over-year traffic increase in Q3, largely driven by the Olympic Games, which could add $3-4 million in revenue. Importantly, content delivery now accounts for just a third of overall revenue, down from two-thirds five years ago. This shift allows AKAM to capitalize on strong demand in its cloud and security sectors.
- Security revenue grew by 15% year-over-year to $499 million, representing over half of AKAM's total Q2 revenue of $979.6 million, a 4.7% year-over-year increase. Cloud computing revenue surged by 23% year-over-year to $151 million.
- AI is also contributing to AKAM's growth, albeit modestly. The company is implementing AI-powered tools, such as a chatbot, to enhance customer experience. Although AI currently represents a small part of AKAM's total annualized recurring revenue (ARR), management is optimistic about its future potential.
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AKAM's updated guidance was a key highlight. The company projected Q3 adjusted EPS above consensus and revenue growth of 2-4%, similar to Q2. For FY24, AKAM raised its adjusted EPS outlook to $6.34-6.47 from $6.20-6.40 and revenue guidance to $3.97-4.01 billion from $3.95-4.01 billion.
- The company only increased the low end of its FY24 revenue outlook due to a weak Q4 last year, typically its strongest quarter.
After a challenging Q1, AKAM's Q2 performance and improved guidance for Q3 and FY24 were a welcome relief. While Q3 forecasts don't indicate significant sequential improvement, they do suggest that the worst may be behind the company.
