Margins matter. The more Akamai Technologies (Nasdaq: AKAM) keeps of each buck it earns in revenue, the more money it has to invest in growth, fund new strategic plans, or (gasp!) distribute to shareholders. That's why I check on my holdings' margins at least once a quarter. I'm looking for the absolute numbers, comparisons to sector peers and competitors, and any trend that may tell me how strong Akamai Technologies's competitive position could be.

Here's the current margin snapshot for Akamai Technologies and some of its sector and industry peers, and direct competitors.

Company

TTM Gross Margin

TTM Operating Margin

TTM Net Margin

 Akamai Technologies

73.5%

27.7%

16.3%

 Microsoft (Nasdaq: MSFT)

80.2%

39.5%

30.0%

 eBay (Nasdaq: EBAY)

71.9%

21.8%

27.9%

 VeriSign (Nasdaq: VRSN)

77.5%

34.3%

22.0%

 Apple (Nasdaq: AAPL)

40.8%

29.1%

21.4%

Source: Capital IQ, a division of Standard & Poor's. TTM = trailing 12 months.

Unfortunately, that chart doesn't tell us much about where Akamai Technologies has been or where it's going. A company with rising gross and operating margins often fuels its growth by increasing demand for its products. If it sells more units while keeping costs in check, its profitability increases. Conversely, a company with gross margins that inch downward over time is often losing out to competition, and possibly engaging in a race to the bottom on prices. If it can't make up for this problem by cutting costs -- and most companies can't -- then both the business and its shares face a decidedly bleak outlook.

Of course, over the short term, the kind of economic shocks we recently experienced can drastically affect a company's profitability. That's why I like to look at five fiscal years' worth of margins, along with the results for the trailing 12 months (TTM), the last fiscal year, and last fiscal quarter (LFQ). You can't always reach a hard conclusion about your company's health, but you can better understand what to expect, and what to watch.

Here's the margin picture for Akamai Technologies over the past few years.


(Because of seasonality in some businesses, the numbers for the last period on the right -- the TTM figures -- aren't always comparable to the FY results preceding them.)

Here's how the stats break down:

  • Over the past five years, gross margin peaked at 80.3% and averaged 76.5%. Operating margin peaked at 32.2% and averaged 25.8%. Net margin peaked at 115.9% and averaged 36.1%.
  • Fiscal year 2009 gross margin was 73.5%, 300 basis points worse than the 5-year average. Fiscal year 2009 operating margin was 28.6%, 280 basis points better than the 5-year average. Fiscal year 2009 net margin was 17%, 1,910 basis points worse than the 5-year average.
  • TTM gross margin is 73.5%, 300 basis points worse than the 5-year average. TTM operating margin is 27.7%, 190 basis points better than the 5-year average. TTM net margin is 16.3%, 1,980 basis points worse than the 5-year average.
  • LFQ gross margin is 70.7%, about the same as the prior year quarter. LFQ operating margin is 23.2%, 340 basis points worse than the prior year quarter. LFQ net margin is 15.5%, 210 basis points worse than the prior year quarter.

With recent 12-month-period operating margins exceeding historical averages, Akamai Technologies looks like it is doing fine.

If you take the time to read past the headlines and crack a filing now and then, you're probably ahead of 95% of the market's individual investors. By keeping an eye on the health of your companies' margins, you can spot potential trouble early, or figure out whether the numbers merit Mr. Market's enthusiasm or pessimism. Let us know what you think of the health of the margins at Akamai Technologies in the comments box below. Or, if you're itching to learn more, head on over to our quotes page to view the filings directly.

Seth Jayson had no position in any company mentioned here at the time of publication. You can view his stock holdings here. He is co-advisor of Motley Fool Hidden Gems, which provides new small-cap ideas every month, backed by a real-money portfolio.

Microsoft is a Motley Fool Inside Value choice. Akamai Technologies is a Motley Fool Rule Breakers selection. Apple and eBay are Motley Fool Stock Advisor recommendations. Motley Fool Options has recommended a bull call spread position on eBay. Motley Fool Options has recommended a diagonal call position on Microsoft. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.