Online services provider Akamai's move to shift the company away from a primarily CDN focus to tailoring its products toward industry verticals brought in earnings well above analyst estimates in the first quarter of 2016, posting revenues of $567.72 million, or $3.91 million above forecasts, and diluted net earnings per share of 66 cents, 3 cents higher than predicted.
Akamai realigned into three major service divisions starting last year: Media, Web, and Enterprise and Carrier, each targeting a specific group of industry verticals and each providing specific development, product management, sales and marketing expertise. The move, which cost the provider about $7 million in expenses in the first quarter, is part of its effort to maintain profitability as price pressures on the CDN market continue to increase. The provider has also increased focus overall on other aspects of its portfolio such as cybersecurity and cloud services.
"We believe that we will continue to benefit from strong secular tailwinds such as the increasing amount of video being consumed online, the rapid proliferation of mobile devices, the growing need for cloud-based security solutions and the continued migration of enterprise applications to the cloud," said Frank Thomas Leighton, CEO and director, in the company's first-quarter earnings call, according to a Seeking Alpha transcript.
The company's Media Delivery Services unit was slightly down for the quarter, with revenues of $206 million, but "in line with our expectations," said CFO and EVP James Benson. Revenue for the entire Media Division was $292 million, down 1 percent year-over-year. That was partly due to "DIY efforts" of two unnamed major media customers -- meaning, they are implementing a different online video delivery solution, either their own or through another third party provider.
However, Akamai's new Web and Enterprise and Carrier Divisions grew gangbusters: Web was up 18 percent year over year with revenues of $264 million, while Enterprise and Carrier saw 45 percent year over year growth with revenues of $12 million.
International sales made up 30 percent of Akamai's total revenue in the first quarter, or $170 million, up 24 percent year over year, with Asia Pacific as one of its strongest regions. Revenue in its U.S. market was $397 million, up just 2 percent.
The new tripartite operating structure's results apparently had a positive effect on both analysts and investors: Evercore ISI analysts upgraded Akamai to "buy" with a target price of $65, and shares of Akamai swung upward 7.48 percent in midmorning trading on the Nasdaq, to $56.60.
For more:
- see the release
- see this Seeking Alpha transcript
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