Akamai Technologies (AKAM, Financial) has revised its FY24 earnings and revenue forecasts downward, citing ongoing challenges in its content delivery network (CDN) sector. The company now expects adjusted EPS to be between $6.20 and $6.40, a decrease from the previously projected $6.63 to $6.68. Revenue projections have also been adjusted to $3.95 billion to $4.02 billion from the earlier $4.04 billion to $4.12 billion. This revision reflects immediate impacts, with Q2 earnings and revenues anticipated to fall below market expectations.
Akamai, primarily known for its CDN services, helps businesses deliver online content efficiently using its vast server network. Despite a shift towards higher-growth areas like security and cloud computing, content delivery still accounts for about a third of its Q1 revenues. The company uses its profits from this segment to further invest in its expanding security and cloud portfolios.
The decline in content delivery revenue has accelerated, dropping 11% year-over-year in Q1, compared to 6% in Q4 of 2023 and 4% in Q3 of 2023. This downturn is largely due to reduced traffic growth across the industry and significant cost-cutting by a major social media client, which alone could reduce Akamai's FY24 revenue by $40 million to $60 million. Additionally, the industry faces challenges from gaming and video sectors, where a crackdown on password sharing could reduce content streaming, adversely affecting Akamai while potentially benefiting companies like Netflix (NFLX, Financial) by increasing revenue per user and reducing bandwidth costs.
Despite these challenges in content delivery, Akamai saw a silver lining with a 25% and 21% year-over-year growth in its compute and security revenues, respectively. This growth contributed to an overall revenue increase of 7.8% to $986.97 million in Q1. The company also announced a new three-year $2.0 billion stock repurchase program, underscoring its financial health and commitment to shareholder value.
The ongoing slowdown in traffic growth continues to pose significant challenges for Akamai, with the company acknowledging the difficulty in predicting when stabilization will occur. This uncertain environment underscores the complexities of recovering in the near term.
