Akamai Technologies (NASDAQ: AKAM) has made a notable recovery in Q2 2024, with the company’s latest earnings report signaling potential stabilization in demand after a challenging first quarter.
The content delivery network (CDN) provider managed to outperform expectations, which has contributed to a significant 11% increase in its stock price. This is a positive shift for Akamai, which had been grappling with slowing internet traffic and a weaker performance earlier in the year.
Akamai's Q2 performance highlighted several key areas of improvement. Although delivery revenue fell by 13% year-over-year to $329 million due to ongoing weak traffic across the industry, the company had already prepared investors for a subdued quarter by issuing bearish guidance in Q1.
As a result, the market was more focused on the positive signals rather than the underwhelming delivery segment results.
A major factor driving investor optimism is Akamai’s guidance for the upcoming quarters. The company expects a modest year-over-year increase in traffic in Q3, largely supported by events like the Olympic Games, which are anticipated to generate an additional $3-4 million in revenue.
Additionally, content delivery now accounts for just one-third of Akamai’s overall revenue, down from around two-thirds five years ago.
This shift has allowed the company to capitalize on the growing demand in its cloud and security segments.
In Q2, security revenue rose by 15% year-over-year to $499 million, making up more than half of Akamai’s total revenue for the first time. This is a significant milestone, as total revenue grew by 4.7% year-over-year to $979.6 million.
Cloud computing revenue also saw impressive growth, increasing by 23% year-over-year to $151 million. These figures underscore the company’s successful diversification away from its traditional CDN business.
Akamai is also exploring opportunities in artificial intelligence (AI). The company has begun implementing AI-powered tools, such as chatbot applications, to enhance customer experience.
While AI currently represents a small fraction of Akamai’s annualized recurring revenue (ARR), management is optimistic about the long-term growth potential of these technologies.
The most encouraging aspect of Akamai’s report was its guidance for Q3 and the full fiscal year 2024. After a disappointing Q1, the company needed to demonstrate stability, and it delivered. Akamai’s Q3 adjusted EPS guidance came in ahead of consensus estimates, and revenue projections were in line, indicating growth of 2-4%, consistent with Q2’s performance.
For the full year, Akamai raised its adjusted EPS forecast to $6.34-$6.47, up from the previous range of $6.20-$6.40. The revenue outlook was slightly improved as well, with the company now expecting $3.97-$4.01 billion, compared to the prior guidance of $3.95-$4.01 billion.
Akamai’s decision to only lift the lower end of its FY24 revenue guidance reflects cautious optimism, especially given the muted performance in Q4 last year, which is typically the company’s strongest quarter.
Overall, Akamai’s Q2 2024 earnings report and the subsequent guidance for Q3 and FY24 suggest that the company may have turned a corner after a difficult start to the year. While sequential improvement in Q3 is expected to be modest, the absence of further deterioration is an encouraging sign that the worst may be behind Akamai.
The company’s strong performance in its cloud and security businesses, coupled with its strategic focus on AI, positions it well for continued growth in the coming quarters.