Akamai's Q3 Beat Prompts SunTrust To Turn Bullish

A bullish case for can be made for Akamai Technologies, Inc. AKAM after the tech company's third-quarter earnings beat Monday, according to SunTrust Robinson Humphrey. 

What Happened

Akamai said it earned 94 cents per share in Q3 on revenue of $670 million versus expectations of 83 cents per share and $664.46 million. By segment, web division revenue rose 8 percent from a year ago to $357 million and media and carrier division revenue rose 6 percent to $313 million.

Net income for the quarter rose 68 percent from a year ago to $181 million, while the non-GAAP operating margin improved percentage points from a year ago to 27 percent. Q3 marks the fourth consecutive quarter of non-GAAP operating margin improvement, and Akamai remains on track to hit its 30-percent margin goal in 2020, the company said. 

Why It's Important

SunTrust Robinson Humphrey's Greg Miller upgraded Akamai from Hold to Buy with a price target lifted from $78 to $82. The analyst cited three key takeaways from Q3 that warrant a bullish stance. (See his track record here.)

• Despite foreign exchange woes, the company reported better-than-expected revenue growth, with notable strength in cloud security and stability in top customers.
• Management's "exceptionally strong" expense control helped generate a profit beat, with reason to believe more improvements can be made over the years.
• Akamai spent more than expected on share repurchases in Q3 and appears to be on track to hit its $750-million authorization by the end of the year.

What's Next

Akamai is well-positioned with a mix of products and offering to take advantage of ongoing growth trends in the following categories, Miller said:

• Over-the-top video.
• Online gaming.
• Growing demand for cloud security products.

Related Links:

DA Davidson Upgrades Akamai: 'Revenue From New Products Has Tripled In Just The Last Year'

Credit Suisse Downgrades Akamai, Projects 'Forthcoming Headwinds'

Photo courtesy of Akamai.