Akamai Revenue Miss Overshadows Margin Improvement

Akamai (AKAM) reported Q1 revenue of $187 million, missing Street estimates of $190 million. Non-GAAP EPS, however, topped the Street’s number, coming in at $0.41 vs. $0.39 consensus. Goldman thinks that Akami’s weak top line can be explained by strong macro headwinds, while strong opex controls expanded margins. Whatever the explanation, the Street won’t like it:

Non-GAAP gross margin was 73.2%, in line with out 73.3% estimate while “cash” gross margin of 81.4% was a touch better than our 81.2% estimate. Adjusted EBITDA was $87 million, in-line with our $87 million estimate. Cash flow from operations came in at $88 million vs. our $91 million estimate. Net new customer adds were 27, consistent with lower 4Q levels, and below our estimate of 40.

We believe Akamai was impacted at least somewhat by US-based macro slowing in the quarter, mostly manifest in M&E business. From a top-line perspective, this suggests that the CDN industry is not immune from macro-related slowing and that we are not yet seeing signs of any significant re-acceleration of online traffic. On the posiitive side, the slower M&E business likely positively impacted cash gross margins in the quarter, while opex controls remain solid. akamai continues to have to walk a fine line between high-expectations for growth and concerns about gross margin compression. Our rating remains Neutral.

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