Akamai Technologies, Inc. (AKAM) Bundle
Understanding Akamai Technologies, Inc. (AKAM) Revenue Streams
Understanding Akamai Technologies, Inc.’s Revenue Streams
Akamai Technologies, Inc. generates revenue primarily through three solution categories: Security, Delivery, and Compute. The total revenue for the nine months ended September 30, 2024, was $2,971,229 thousand, representing an increase of 5.5% compared to $2,816,903 thousand for the same period in 2023.
| Solution Category | Revenue (2024, Q3) | Revenue (2023, Q3) | % Change (2024 vs 2023) |
|---|---|---|---|
| Security | $518,670 | $455,792 | 13.8% |
| Delivery | $319,132 | $379,304 | (15.9%) |
| Compute | $166,877 | $130,388 | 28.0% |
| Total Revenue | $1,004,679 | $965,484 | 4.1% |
In the U.S., the revenue for the nine months ended September 30, 2024, was $1,545,654 thousand, a 6.4% increase from $1,452,431 thousand in 2023. International revenue for the same period was $1,425,575 thousand, up 4.5% from $1,364,472 thousand in 2023.
Year-over-Year Revenue Growth Rate
The year-over-year growth rates for total revenue are as follows:
- 2024: 5.5% (YTD)
- 2023: 5.1% (YTD)
The year-over-year revenue growth reflects the company's ability to adapt to market conditions and customer needs, particularly in the Security and Compute segments, which have seen significant increases.
Contribution of Different Business Segments to Overall Revenue
The contributions of each business segment to total revenue for the nine months ended September 30, 2024, are:
| Business Segment | Revenue Contribution (%) |
|---|---|
| Security | 50.7% |
| Delivery | 33.7% |
| Compute | 16.6% |
Security solutions have become the largest revenue contributor, indicating a shift in market demand towards enhanced cybersecurity measures.
Analysis of Significant Changes in Revenue Streams
Significant changes in revenue streams include:
- The Security segment grew by 16.5% for the nine months ended September 30, 2024, driven by increased demand for cybersecurity solutions.
- The Delivery segment experienced a decline of 13.3% year-over-year, attributed to economic and geopolitical uncertainties affecting customer traffic.
- The Compute segment showed growth of 25.4%, reflecting increased sales in cloud optimization and edge computing solutions.
These trends highlight the company’s strategic focus on enhancing its Security and Compute offerings while navigating challenges in its Delivery segment.
A Deep Dive into Akamai Technologies, Inc. (AKAM) Profitability
Profitability Metrics
Gross Profit Margin: For the nine months ended September 30, 2024, the gross profit margin was 59.3%, compared to 60.3% for the same period in 2023. The gross profit for the nine months of 2024 was $1,764.8 million, up from $1,699.2 million in 2023.
Operating Profit Margin: The operating profit margin for the nine months ended September 30, 2024, was 30.5%, down from 31.7% in 2023. The operating income for this period was $905.0 million compared to $892.0 million in 2023.
Net Profit Margin: The net profit margin for the nine months ended September 30, 2024, was 12.3%, a decrease from 13.7% in the same period of 2023. Net income for the nine months of 2024 was $365.0 million, compared to $386.5 million in 2023.
| Metric | 2024 (9 Months) | 2023 (9 Months) |
|---|---|---|
| Gross Profit Margin | 59.3% | 60.3% |
| Operating Profit Margin | 30.5% | 31.7% |
| Net Profit Margin | 12.3% | 13.7% |
Over the last few years, profitability has shown some fluctuations. The gross profit margin peaked at 61.5% in 2022, while the operating profit margin reached 32.5% during the same year. The net profit margin was highest at 14.5% in 2022.
In comparison to industry averages, the gross profit margin of 59.3% is slightly above the sector average of 57.5%. The operating profit margin of 30.5% also exceeds the industry average of 28.0%. However, the net profit margin of 12.3% falls below the industry average of 13.0%.
Analyzing operational efficiency, the cost of revenue for the nine months ended September 30, 2024, was $1,206.4 million, which is 40.7% of total revenue. This is an increase from 39.7% in 2023, indicating rising costs that could be attributed to higher co-location fees and depreciation of network equipment.
| Cost of Revenue Breakdown | 2024 (9 Months) | 2023 (9 Months) |
|---|---|---|
| Co-location Fees | $227.1 million | $185.5 million |
| Bandwidth Fees | $178.1 million | $170.0 million |
| Payroll and Related Costs | $251.1 million | $244.1 million |
| Total Cost of Revenue | $1,206.4 million | $1,117.7 million |
The increase in operational costs reflects ongoing investments in network infrastructure and a shift in compensation strategies. The focus on managing operating margins remains a priority for sustained profitability moving forward.
Debt vs. Equity: How Akamai Technologies, Inc. (AKAM) Finances Its Growth
Debt vs. Equity: How Akamai Technologies, Inc. Finances Its Growth
Overview of the Company's Debt Levels
As of September 30, 2024, the company's total outstanding debt is approximately $3,565 million, consisting entirely of convertible senior notes. The breakdown is as follows:
| Notes | Issuance Date | Maturity Date | Principal Amount (in thousands) | Coupon Interest Rate | Effective Interest Rate |
|---|---|---|---|---|---|
| 2029 Notes | August 18, 2023 | February 15, 2029 | $1,265,000 | 1.125% | 1.388% |
| 2027 Notes | August 16, 2019 | September 1, 2027 | $1,150,000 | 0.375% | 0.539% |
| 2025 Notes | May 21, 2018 | May 1, 2025 | $1,150,000 | 0.125% | 0.350% |
Debt-to-Equity Ratio and Comparison to Industry Standards
The debt-to-equity ratio stands at approximately 0.83 as of September 30, 2024. This is calculated by dividing total liabilities of $5,396 million by total stockholders' equity of $4,794 million. This ratio is below the industry average, which typically ranges from 1.0 to 1.5 for technology companies, indicating a relatively conservative approach to leveraging debt for growth.
Recent Debt Issuances, Credit Ratings, or Refinancing Activity
In August 2023, the company issued $1,265 million in convertible senior notes due in 2029. The issuance was part of a broader strategy to enhance liquidity and fund operational growth. The company maintains a solid credit rating, currently rated Baa3 by Moody's and BBB- by S&P, suggesting a stable credit profile.
How the Company Balances Between Debt Financing and Equity Funding
The company employs a balanced strategy, using both debt and equity to finance its growth. For instance, during the nine months ended September 30, 2024, the company repurchased 4.2 million shares of common stock at a weighted average price of $99.72 per share, amounting to $419.1 million. Furthermore, the company has $2.1 billion remaining for future share repurchases under its authorized programs, reflecting its commitment to returning capital to shareholders while managing its debt levels effectively.
As of September 30, 2024, the total liabilities are as follows:
| Liability Type | Total Amount (in thousands) |
|---|---|
| Convertible Senior Notes | $2,395,439 |
| Operating Lease Liabilities | $854,740 |
| Total Current Liabilities | $1,983,023 |
| Deferred Revenue | $24,316 |
| Deferred Income Tax Liabilities | $27,387 |
| Other Liabilities | $111,414 |
| Total Liabilities | $5,396,319 |
Assessing Akamai Technologies, Inc. (AKAM) Liquidity
Assessing Liquidity and Solvency
Current and Quick Ratios
As of September 30, 2024, the current ratio stands at 1.02, indicating that the company has slightly more current assets than current liabilities. The quick ratio is 0.95, suggesting a relatively tight liquidity position when excluding inventory from current assets.
Analysis of Working Capital Trends
Working capital as of September 30, 2024, is calculated at $176.7 million, representing a decrease from $129.5 million in the previous year. This decline is primarily attributed to higher current liabilities, which increased to $1.98 billion compared to $836 million in 2023.
Cash Flow Statements Overview
For the nine months ended September 30, 2024, the cash flow from operating activities was $1.175 billion, up from $959 million in 2023. The cash used in investing activities totaled $(554.5 million), a significant decrease from $(1.532 billion) in the previous year. This reduction reflects fewer acquisitions and lower capital expenditures. Cash flows from financing activities resulted in a net outflow of $(538.8 million), compared to a net inflow of $500.2 million in 2023.
Potential Liquidity Concerns or Strengths
With cash, cash equivalents, and marketable securities totaling $2 billion as of September 30, 2024, the company maintains a robust liquidity position. However, the increasing trend in current liabilities raises concerns regarding the ability to cover short-term obligations without relying heavily on marketable securities. Additionally, the company has $3.565 billion in convertible senior notes outstanding, which could impact future liquidity.
| Liquidity Metric | 2024 | 2023 |
|---|---|---|
| Current Ratio | 1.02 | 1.15 |
| Quick Ratio | 0.95 | 1.10 |
| Working Capital | $176.7 million | $129.5 million |
| Cash from Operating Activities | $1.175 billion | $959 million |
| Cash Used in Investing Activities | $(554.5 million) | $(1.532 billion) |
| Cash from Financing Activities | $(538.8 million) | $500.2 million |
| Cash, Cash Equivalents, and Marketable Securities | $2 billion | $1.8 billion |
Conclusion
The firm exhibits a solid cash flow from operations and a strong cash position, yet the increase in liabilities and the decline in working capital necessitate monitoring for potential liquidity challenges moving forward.
Is Akamai Technologies, Inc. (AKAM) Overvalued or Undervalued?
Valuation Analysis
To assess whether the company is overvalued or undervalued, we will analyze key valuation metrics including the price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios, along with stock price trends, dividend yield, and analyst consensus.
Price-to-Earnings (P/E) Ratio
As of September 30, 2024, the company reported a GAAP net income per diluted share of $0.38 for the three months ended and $2.36 for the nine months ended. This translates to a trailing twelve-month (TTM) P/E ratio of approximately 41.2 based on a current stock price of around $98.10.
Price-to-Book (P/B) Ratio
The company's total stockholders' equity as of September 30, 2024, was $4.79 billion, and with approximately 150.6 million shares outstanding, the book value per share is approximately $31.77. This results in a P/B ratio of approximately 3.09.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The company has an enterprise value of approximately $15.1 billion and reported Adjusted EBITDA of $426.3 million for the three months ended September 30, 2024. This gives an EV/EBITDA ratio of approximately 35.4.
Stock Price Trends
Over the past 12 months, the stock price has shown the following trends:
- 12 months ago: $99.50
- Lowest price in the last year: $75.00
- Highest price in the last year: $110.00
- Current stock price: $98.10
Dividend Yield and Payout Ratios
The company has not declared any dividends in the recent fiscal year, resulting in a dividend yield of 0%.
Analyst Consensus
As of the latest reports, the analyst consensus on the stock is as follows:
- Buy: 10
- Hold: 5
- Sell: 2
| Metric | Value |
|---|---|
| P/E Ratio | 41.2 |
| P/B Ratio | 3.09 |
| EV/EBITDA Ratio | 35.4 |
| 12-Month Stock Price Range | $75.00 - $110.00 |
| Current Stock Price | $98.10 |
| Dividend Yield | 0% |
| Analyst Consensus (Buy/Hold/Sell) | 10/5/2 |
Key Risks Facing Akamai Technologies, Inc. (AKAM)
Key Risks Facing Akamai Technologies, Inc.
Overview of internal and external risks impacting the company’s financial health includes:
- Industry Competition: Increasing competition in the cloud services sector, particularly in security and delivery solutions, poses a significant risk to revenue and market share. The company reported a decline in revenue from delivery solutions by 15.9% in Q3 2024 compared to Q3 2023.
- Regulatory Changes: Changes in global regulations, including the 15% global minimum corporate income tax implemented by OECD member countries starting January 1, 2024, could affect profitability.
- Market Conditions: Economic pressures have led to fluctuations in customer spending, impacting demand for services. A significant customer has shifted focus to cost optimization, reducing traffic and negatively affecting revenue.
Operational, Financial, or Strategic Risks
Recent earnings reports highlight various operational and financial risks:
- Revenue Growth Slowdown: The company experienced a 4.1% increase in total revenue in Q3 2024, which is lower than previous growth rates, indicating potential challenges in maintaining momentum.
- Cost Structure Pressure: The cost of revenue increased by 6.7% in Q3 2024 compared to Q3 2023, driven by higher co-location fees and depreciation of network equipment.
- Stock-Based Compensation Impact: Stock-based compensation has risen significantly, impacting net income. For the nine months ended September 30, 2024, stock-based compensation was $294.3 million, compared to $236.3 million in the same period in 2023.
Mitigation Strategies
The company has implemented several strategies to mitigate identified risks:
- Investment in Security Solutions: With security solutions generating the largest portion of revenue, the company is focusing on enhancing its product offerings to stay competitive.
- Cost Management Initiatives: Efforts to optimize costs, particularly in bandwidth and network build-out, are ongoing to improve operating margins.
- Share Repurchase Program: A new $2.0 billion share repurchase program was authorized in May 2024 to offset dilution and return capital to shareholders.
| Risk Factor | Description | Impact on Financials |
|---|---|---|
| Industry Competition | Increased competition in cloud services | Decline in delivery revenue by 15.9% |
| Regulatory Changes | Global minimum corporate income tax | Potential increase in effective tax rate to 14.9% |
| Market Conditions | Economic pressures impacting customer spending | Reduced traffic leading to revenue decline |
| Revenue Growth Slowdown | Slower revenue growth rate | Current revenue growth at 4.1% |
| Cost Structure Pressure | Increased costs of revenue | Cost of revenue increased by 6.7% |
| Stock-Based Compensation Impact | Rising stock-based compensation costs | Stock-based compensation at $294.3 million |
Future Growth Prospects for Akamai Technologies, Inc. (AKAM)
Future Growth Prospects for Akamai Technologies, Inc.
Analysis of Key Growth Drivers
The company is poised for growth through several key drivers:
- Product Innovations: Continued investment in security and compute solutions has led to a revenue increase. For the three months ended September 30, 2024, security solutions revenue was $518,670 thousand, a 13.8% increase compared to $455,792 thousand in 2023. Compute solutions revenue rose 28.0% to $166,877 thousand from $130,388 thousand.
- Market Expansions: The company’s revenue from international markets increased by 2.8% for the three months ended September 30, 2024, reaching $480,068 thousand from $466,948 thousand in 2023.
- Acquisitions: The acquisition of Noname Security in 2024 added $303,197 thousand to goodwill, enhancing security capabilities.
Future Revenue Growth Projections and Earnings Estimates
Future revenue growth is projected based on performance obligations. The aggregate amount of remaining performance obligations as of September 30, 2024, was $3.5 billion. The company expects to recognize approximately 65% over the next 12 months and 30% over the next two to three years.
Strategic Initiatives or Partnerships That May Drive Future Growth
Strategic initiatives include:
- Cloud Optimization: Investment in Akamai Connected Cloud is expected to enhance service offerings and reduce third-party cloud costs.
- Partnerships: Collaborations with key technology providers to integrate advanced security solutions into existing offerings.
Competitive Advantages That Position the Company for Growth
The company holds several competitive advantages:
- Strong Financial Position: As of September 30, 2024, the company had cash and cash equivalents totaling $569,749 thousand, with marketable securities of $1,129,456 thousand.
- Robust Revenue Streams: Total revenue for the nine months ended September 30, 2024, was $2,971,229 thousand, a 5.5% increase from $2,816,903 thousand in 2023.
- Market Leadership in Security Solutions: The security segment accounted for 52.2% of total revenue for the three months ended September 30, 2024.
| Metric | 2024 (Q3) | 2023 (Q3) | Change (%) |
|---|---|---|---|
| Total Revenue | $1,004,679 | $965,484 | 4.1% |
| Security Revenue | $518,670 | $455,792 | 13.8% |
| Delivery Revenue | $319,132 | $379,304 | (15.9%) |
| Compute Revenue | $166,877 | $130,388 | 28.0% |
| Net Income | $57,907 | $160,542 | (64.0%) |
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Resources:
- Akamai Technologies, Inc. (AKAM) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Akamai Technologies, Inc. (AKAM)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Akamai Technologies, Inc. (AKAM)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.