What Happened?
Shares of web content delivery and security company Akamai (NASDAQ:AKAM) fell 20.3% in the afternoon session after the company reported weak fourth-quarter 2024 results, with next year's revenue guidance signaling a sharp deceleration in demand and falling short of Wall Street's estimates. Revenue grew just 3% year on year with security and compute solutions delivering double-digit growth, but these gains were overshadowed by an 18% drop in delivery revenue, the segment that historically generated a substantial portion of Akamai's business. Despite this, it wasn't all bad as adjusted operating profits and earnings beat expectations, and next-quarter EBITDA guidance also came in ahead of forecasts. It seems AKAM is shifting focus to profit growth as top-line expansion slows. Notably, the full-year outlook isn't great, implying 2.7% revenue growth at the midpoint, down from 4.8% in 2024. Overall, this was a weaker quarter, as revenue struggles overshadowed strong profit growth.
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What The Market Is Telling Us
Akamai’s shares are not very volatile and have only had 3 moves greater than 5% over the last year. Moves this big are rare for Akamai and indicate this news significantly impacted the market’s perception of the business.
The biggest move we wrote about over the last year was 4 months ago when the stock dropped 13.7% on the news that the company reported weak third quarter earnings, with revenue guidance for the next quarter falling below Wall Street's estimates. Also, the company recorded underwhelming sales growth during the quarter primarily due to softer-than-expected performance in the delivery segment, which saw a significant slowdown in traffic growth across key verticals like video streaming and gaming. Profitability was also weak as margins declined across the board, partly impacted by restructuring costs, which included an $82 million charge related to workforce reductions aimed at refocusing resources on growth areas like cloud computing and security. Overall, this was a softer quarter.
Akamai is down 18.1% since the beginning of the year, and at $78.14 per share, it is trading 30.7% below its 52-week high of $112.83 from March 2024. Investors who bought $1,000 worth of Akamai’s shares 5 years ago would now be looking at an investment worth $777.31.
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