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Akamai Faces More Competition and Pricing Pressure in 3Q15

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Akamai beats analysts’ expectations

On October 27, 2015, Akamai (AKAM) was the latest technology company in the current earnings season to announce its fiscal 3Q15 results. The company’s revenues and non-GAAP (generally accepted accounting principles) EPS (earnings per share) of $551.03 million and $0.62, respectively, beat analyst expectations by $0.74 million and $0.04, respectively.

In 2Q15, Akamai provided revenue and EPS guidance in the range of $543 million–$555 million and 56 cents–58 cents, respectively, for fiscal 3Q15.

Akamai’s revenue of $551 million grew more than 10.6% year-over-year in 3Q15. On a constant-currency basis, its revenues grew by ~15%.

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The above chart shows the individual contribution of Akamai’s segments towards the company’s overall revenues.

Akamai’s business

Akamai is a provider of cloud services that deliver, optimize, and secure online content and business applications. Akamai primarily derives income from customer sales, executing service contracts with terms of a year or longer. The company offers solutions in the following areas:

  • Media delivery: This segment’s revenue of $245 million grew 5% year-over-year in 3Q15.
  • Performance and security: This segment’s revenue grew 15% to reach $263 million in 3Q15. Cloud security solutions, part of the Performance and Security Solutions segment, rose by 39%.
  • Service and support: This segment grew 19% to $43 million in 3Q15.

Akamai leads the content delivery network (or CDN) space

Delivering up to 30% of the world’s web traffic through its network of approximately 200,000 servers, Akamai leads the online content and application distribution space in terms of market share. Networks are an integral part of the infrastructure required to build online video services for satellite and cable providers. Increasing demand for cloud infrastructure solutions, mobile product security, and online video are key growth drivers for Akamai.

You can consider investing in the SPDR S&P 500 ETF (SPY) to get diversified exposure to Akamai. SPY invests approximately ~0.08% of its holdings in Akamai.

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