Internet giant Akamai’s financial results hit by war and inflation

Akamai's headquarters in Kendall Square.Suzanne Kreiter/Globe staff/file

Akamai Technologies became the latest tech stock to hit the skids after the Cambridge-based Internet company warned that the war in Ukraine, higher inflation, and slowing Internet usage would hurt its sales this year.

Shares of Akamai closed at $102.76 on Wednesday, down about 10 percent. The company joined a host of other area tech players that have seen their stock prices fall amid difficult economic conditions.

“It’s remarkable how quickly the world has changed with the war in Ukraine, the significant strengthening of the US dollar, escalating inflation, increasing concerns about a recession, and a moderation of Internet traffic growth as many countries remove mask mandates,” chief executive Tom Leighton said on a call with analysts.

As a result of the challenges, the cybersecurity and Internet services company said it expects to bring in $3.62 billion to $3.67 billion in revenue for the year, representing a gain of 5 percent to 6 percent over 2021. The guidance was down from a forecast of $3.673 billion to $3.728 billion (up 6 percent to 8 percent) that the company announced in February.

The reduced forecast still included about $100 million gained through the acquisition of Linode, a Philadelphia-based Internet hosting service, which was completed in March. Akamai‘s revenue was also bolstered by its acquisition of Israeli cybersecurity company Guardicore in October.

Results for the first quarter also came in slightly below what Wall Street analysts expected. Revenue of $904 million, a 7 percent gain from the same period last year, was about $1 million below the average estimate and adjusted earnings per share of $1.39 missed by 3 cents.

Analyst James Fish at Piper Sandler called the results “messier than a teenager’s bedroom.” The growth of Internet traffic on Akamai’s network is slowing as gaming, video streaming, and online shopping “return to normal” as the pandemic eases, Fish added.

Still, Leighton’s strategy to offset a long-term decline in Akamai’s core business of distributing online content with growth from cybersecurity, cloud computing, and new acquisitions remains on track, analyst Jim Breen at William Blair & Co. noted.

The company’s security revenue rose 23 percent to $382 million in the first quarter, computing revenue gained 32 percent to 78 million, and content distribution revenue declined by 6 percent to $444 million.

“Despite the lower [guidance], the company is further diversifying its revenue away from slower growth and lower profit segments, which we believe will be beneficial to investors over the next several quarters,” Breen wrote in a report on Wednesday. “In our view, valuation is attractive.”

CEO Leighton echoed that view on the call with analysts.

“In spite of the headwinds, we feel good about the growing demand from customers for our security and compute solutions, the expertise of our team and the addition of capabilities and talent from Guardicore and Linode, and how all of this gives Akamai not one, but two rapidly growing and highly synergistic businesses,” he said.