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Shares of Akamai Technologies (AKAM) are trading with gains of more than 20% in Thursday's trading session. The provider of content delivery and cloud infrastructure services for content and applications on the internet reported a strong set of first-quarter results for the new year.

First-Quarter Results

Akamai Technologies generated first-quarter revenue of $368 million, up 15% on the year. Adjusting for the divestiture of its former Advertising Decision Solutions business unit, revenues were up by some 18%. Revenues came in ahead of consensus estimates of $357.7 million.

Non-GAAP income came in at $93 million, or $0.51 per share. This is up 43% on the year before, when non-GAAP earnings per share came in at $0.36 pr share. Non-GAAP earnings comfortably beat consensus estimates of $0.46 per share.

Comforting to investors is the fact that the gap between GAAP and non-GAAP earnings is shrinking as the pace of stock-based compensation growth is slowing down. GAAP net income came in at $71 million, or $0.39 per diluted share, which is up 65% on the year.

CEO Tom Leighton commented on the results, "We are very pleased with our first quarter results, delivering better than expected revenue growth and EPS expansion. We saw strong acceleration in our media delivery solutions, made further traction in our management of network costs, and continued our investments to capitalize on what we see as the opportunities and megatrends shaping online business: cloud, mobile, video and security."

Akamai used some of its large cash balances to repurchase its own shares. During the first quarter, Akamai repurchased 1.1 million shares for approximately $40 million. Under its current share repurchase program being authorized, the company may repurchase another $119 million of its own shares.

Looking into the second quarter

For the current second quarter, Akamai expects to generate revenues between $368 and $378 million, up 1.4% on the first quarter, and up 12.6% on the year before. The revenue guidance comfortably beat consensus estimates of $363 million.

Adjusted earnings are expected to come in between $0.44 and $0.46 per share. Analysts were looking for guidance for earnings of $0.44 per share.

Valuation

Akamai Technologies ended its first quarter with roughly $1.08 billion in cash, equivalents and marketable securities. The company operates without any debt outstanding for a strong net cash position.

For the full year of 2012, Akamai generated revenues of $1.37 billion on which the firm net earned $204 million. Extrapolating the strong first-quarter results, and Akamai is on track to generate annual revenues of approximately $1.6 billion, on which it could earn roughly $300 million.

Factoring in a 20% jump in the share price and the market is valuing the company at $7.7 billion. Excluding the net cash position of the firm values operating assets of Akamai around $6.6 billion. This values the operating assets of Akamai at around 4.1 times annual revenues and 22 times annual earnings.

Despite the strong financial position of the firm, Akamai does not currently pay out a dividend.

Some Historical Perspective

Long-term holders of the stock have seen great returns, accompanied by even greater volatility. Shares have almost twenty-folded over the past decade as they rose from levels at $2 in 2003 to peak around $55 in 2007. Shares fell back towards $12 during the crisis to recover to $50 in 2010 again. After a sharp pullback towards $20 in 2011, shares have roughly doubled again, currently exchanging hands around $44 per share.

The long-term rise in the share price has been supported by ever-growing operations. Between 2009 and 2012, Akamai managed to report a cumulative revenue growth of approximately 60%, to almost $1.4 billion. Earnings rose by a "mere" 40% over the same time period to just over $200 million in 2012.

Investment Thesis

Akamai's strong performance has been driven by a continued surge in internet traffic, geared towards social media, gaming and downloading. The company has currently placed over 132,000 servers across the globe. Akamai benefits handsomely as consumers see increasingly more content on Facebook (FB), download apps from Apple (AAPL) or watch shows on Netflix (NFLX).

Akamai already indicated halfway through the quarter that it would end some of its media contracts as they were not adding too much value. Despite the wind-downs, performance in the media division was solid as traffic growth more than offset the impact of cancellations.

Akamai is in a good spot right now. It is growing rapidly across a diverse range of businesses. The firm has targeted cloud, mobile, video and security as future growth areas, giving it a strong and diversified base to grow its revenues.

I can only applaud Akamai for its impressive quarter. Revenues are growing across the board, and growth is of a high quality as it has been driven by all businesses and geographical regions. After years of sub-optimal earnings growth, margin expansion is finally materializing again, resulting in speculator short-term earnings growth.

That being said, Thursday's 20% jump make shares a little bit expensive at 22 times 2013's estimated earnings, after backing out the net cash position of the firm. Although this advice comes a little too late, I would be a buyer on significant dips.

Source: Akamai Technologies - Shares Hit A Fresh 2-Year High As Revenue Growth Impresses