Disappointing guidance sends Cloudflare and Akamai stocks lower – News

Investors bailed on the cloud content delivery network and security firms Cloudflare Inc. and Akamai Technologies Inc. today after both companies provided tepid guidance in the wake of their third-quarter results.

Cloudflare’s stock was down just over 6% in extended trading after the company offered a sales forecast for the current quarter that came up short of analyst’s expectations, while shares of Akamai fell more than 7% after it cut its guidance for fiscal 2024 revenue.

In the quarter just gone, Cloudflare reported earnings before certain costs such as stock compensation of 20 cents per share, beating Wall Street’s target of 18 cents, while its revenue grew by an impressive 38%, to $430 million. Wall Street had been looking for sales of just $424.1 million.

The strong performance helped Cloudflare move closer to profitability. It reported a net loss of $15.3 million in the quarter, improving on the $23.5 million loss it reported one year earlier.

For the current quarter, Cloudflare said it’s anticipating earnings of 18 cents per share at the midpoint of its guidance, just ahead of the Street’s target of 17 cents. However, it came up short with its revenue forecast. The company anticipates sales of between $451 million and $452 million, trailing the Street’s forecast of $455 million.

Cloudflare also reiterated its annual sales forecast, saying it sees full-year revenue of $1.66 billion at the midpoint, matching the Street’s consensus estimate.

The company is best known for its content delivery network, which enhances the security, speed and performance of websites and other online services. Its technology operates as a kind of intermediary between its customers’ users and servers, caching and delivering content, filtering traffic and blocking security threats.

In recent months, the company has experienced a number of headwinds, with customers scaling back their technology budgets in light of the current economic uncertainty. At the same time, it’s facing growing competition from cybersecurity firms such as Palo Alto Networks Inc. and CrowdStrike Holdings Inc., which offer consolidated security platforms that don’t just protect applications, but also enhance their performance.

Cloudflare, which also competes against Akamai, has responded by diversifyinng its product base. This year it has continued to innovate around core offerings such as its Web Application Firewall and Cloudflare Workers, and it has also attempted to capitalize on the growth of the artificial intelligence industry in a roundabout way. Most recently, it debuted a tool that website owners can use to identify which AI models are scraping their content, and bill them for doing so.

Despite the after-hours drop, Cloudflare co-founder and Chief Executive Matthew Prince (pictured at top) said he was pleased with the company’s progress, especially in terms of customer growth.

“We added a record 219 large customers and achieved a new milestone – 35% of the Fortune 500 are now paying Cloudflare customers,” he said.

Akamai’s growth slows to a crawl

Akamai’s results were perhaps a tad more disappointing, as the company could only match Wall Street’s expectations in terms of earnings. It reported a profit before certain costs of just $1.59 per share, while its revenue increased by just 4%, to $1.005 billion, just ahead of the Street’s target of $999.5 million.

The pedestrian rate of revenue growth appears to have had an impact on Akamai’s bottom line, for it reported a net profit of just $57.9 million for the quarter, down from a $131.7 million profit in the year-ago quarter.

Akamai has three core business segments, with its content delivery network joined by cloud computing services, including virtual machines, databases and storage solutions, and a cybersecurity unit that’s focused on securing application programming interfaces and internet access.

It’s best known for its content delivery network, which is designed to support website scaling, video distribution and edge applications, but it’s this segment of the business that appears to be under the most pressure. Revenue there fell 16% from a year earlier, to $319 million.

Akamai Chief Executive Tom Leighton (pictured above) addressed the poor performance of the content delivery business in a conference call with analysts, saying it has been challenged by “macroeconomic and geopolitical headwinds.”

Still, Akamai made up for it with decent growth in its security and compute segments. The security business generated $519 million in sales, up 14% from a year ago, while the cloud computing business added $167 million, growing 28%.

Leighton said he’s excited by the company’s prospects in these two areas. “Together, these solutions grew 17% on a year-over-year basis and now account for nearly 70% of our total revenue,” he told analysts on the call.

While those businesses might be promising growth prospects, it remains to be seen if they’ll grow fast enough to satisfy investors. Turning its attention to the current quarter, Akamai said it’s anticipating fourth quarter earnings of between $1.49 per share and $1.56 per share on revenue of between $995 million to $1.02 billion. Unfortunately for Akamai, Wall Street has much higher expectations, with analyst’s modeling earnings of $1.62 per share on revenue of $1.03 billion.

The lower forecast is likely what prompted Akamai to slash its annual forecast. The company said it’s now expecting fiscal 2024 earnings of between $6.31 and $6.38 per share, down from its prior range of $6.34 to $6.47, and below the Street’s consensus of $6.43.

As for fiscal 2024 revenue, Akamai is now looking at a range of $3.966 billion to $3.991 billion, down from a forecast of $3.97 billion to $4.01 billion provisionally. Once again, the midpoint comes up short, with Wall Street targeting full-year sales of $4 billion.

Photos: News and Akamai