Akamai Technologies Inc. (AKAM - Free Report) reported non-GAAP earnings of 69 cents per share for fourth-quarter 2017, down 4.2% year over year (up 1% adjusted for foreign exchange and the dilutive effect of the SOASTA and Nominum acquisitions). Nevertheless, it surpassed the Zacks Consensus Estimate of 63 cents per share and increased 11.3% on sequentially.

Revenues of $663 million beat the Zacks Consensus Estimate of $647 million and increased 8% from the year-ago quarter and almost 6.8% from the previous quarter. Notably, both the top and the bottom line came ahead of management’s expectations in the fourth quarter. Strong media division traffic and growing adoption of cloud-based security solutions were the major tailwinds.

Excluding Internet Platform Customers, revenues increased 9% year over year (up 6% when adjusted for foreign exchange). Revenues from Internet Platform Customers were $50 million, down 15% year over year and 1.9% sequentially. The year-over-year plunge was primarily attributed to declining revenues from large customers, namely Amazon (AMZN - Free Report), Apple (AAPL - Free Report), Facebook (FB - Free Report), Google, Microsoft and Netflix due to their do-it-yourself (DIY) initiatives.

Akamai stock has inched up 0.2% over a year, underperforming the 18.7% rally of the industry it belongs to.

Revenues Details

Akamai currently reports its business under three main divisions — Media, Web and Enterprise and Carrier. It started this practice effective second-quarter 2016, marking a shift to a customer-focused structure.

Media Division — Revenues decreased 3% year over year (down 1% when the impact of large Internet platform customers was excluded) to $284 million.

Web Division — Revenues increased 17% year over year (up 15% when adjusted for foreign exchange) to $355 million. It contributed 54% of fourth-quarter revenues. The year over year increase was driven by better-than-expected uptake in holiday commerce traffic, new products adoption, and Security Solutions.

Enterprise and Carrier Division — Revenues of $24 million rose 24% from the year-ago quarter (up 23% when adjusted for foreign exchange).

However, the company continues to report results per its old structure (solution category-wise) to give investors a better perspective.

Performance & security solutions revenues totaled $416 million, reflecting 13% increase from the year-ago quarter (12% when adjusted for foreign exchange). The company’s media division customers ensured a moderate use of the performance solutions, thereby impacting revenues positively.

Cloud Security solutions segment revenues were up 32% year over year to $135 million. It comprised 20% of total revenues.

Media Delivery solutions segment revenues declined 3% year over year to $190 million. However, excluding the impact of the large Internet platform customers, the figure was flat from the year-ago quarter.

Services and Support solutions came in at $57 million, up 9% on a year-over-year basis.

Geographically, U.S. revenues increased 1% while International revenues soared 21% (up 17% when adjusted for foreign exchange) on a year-over-year basis.

Management noted that the growing adoption of Kona Site Defender, Prolexic offerings and the company’s expansion in the fields of bot management backed the impressive performance of the cloud security solutions segment.

Bot Manager Premier, which uses machine learning technologies acquired from Cyberfed to distinguish between human users and machines, has also witnessed accelerated growth. The company’s Enterprise Threat Protector solution that blocks access of employees to infected sites is expected to gain from the Nominum acquisition.

Management is also optimistic about the robust over-the-top (“OTT”) content viewing segment.  Management is positive about the increase in OTT audience. The addition of a new streamlining technology that provides an experience which is a few seconds ahead of satellite and new media client software meant for better viewing experience will aid long-term growth.

Margins

Adjusted EBITDA for the fourth quarter was $241 million, up $15 million from the previous quarter. Adjusted EBITDA margin was 36%, flat sequentially, primarily due to the SOASTA and Nominum acquisition impact.

Non-GAAP operating margin was 23% for the quarter, flat sequentially.

Balance Sheet & Cash Flow

Akamai ended the quarter with $711.9 million in cash, cash equivalents, and marketable securities.

Cash flow from operating activities during the quarter came in at $197.4 million. The company spent $55 million on share repurchases of around 1 million during the quarter.

Guidance

Management expects first-quarter 2018 revenues to be in the range of $647-$659 million. The Zacks Consensus Estimates is pegged at $651.2 million.

The company expects cash gross margins to be around 77% and GAAP gross margins to be approximately 65%. Non-GAAP operating expenses are projected to be in the range of $265-$270 million, primarily due to integration of Nominum acquisition. EBITDA margins in the first quarter are expected to be 36%.

The company expects first-quarter 2018 non-GAAP EPS to be in the range of 67-70 cents per share. The Zacks Consensus Estimates is pegged at 61 cents.

In 2018, the company expects revenues of roughly $2.67 billion to $2.71 billion. The Zacks Consensus Estimate for the same is pegged at $2.69 billion.

Non-GAAP earnings per for 2018 is expected to be in the range of $2.90-$3.00. The Zacks Consensus Estimate for the same is pegged at $2.60 per share.