Earnings Preview: Akamai Technologies

Akamai Technologies (AKAM) is expected to report Q3 earnings after market close Thursday Oct. 30  with a conference call scheduled for 4:30 pm ET.

Guidance

The consensus estimate is 39c for EPS and $195.21M for revenue, according to First Call. Management guided for revenues to be in the range of $193M to $198M and pro forma EPS of 39c to 40c.

Analyst Views

Kaufman Brothers is expecting revenues, adjusted EBITDA, and pro forma EPS of $195.2M, $90.1M, and 39c, respectively. The firm is essentially in-line with Street estimates. Kaufman expects the competitive environment to intensify in the coming months owing to the combination of slowing industry growth, slow economic growth and the proliferation of new competitors. Kaufman sees no fewer than 20 CDNs have received funding for expanding the business, including AT&T's (T) $75M investment in its CDN operation -- all expanding the competitive landscape. With this background, Kaufman said it should not come as surprise that it sees downside risk to management's guidance for Q4. Kaufman's Q4 revenue, adjusted EBITDA and pro forma EPS estimates are $212.2M, $96.6M and 42c, respectively. The respective consensus figures are $211.9M, $98.2M and 43c.

Against this backdrop, Kaufman continues to rate Akamai shares Hold, with a $25 target. As Kaufman does not believe the CDN market is large enough to sustain the over 20 competitors that currently exist, the firm would look for consolidation to occur, with Akamai likely to remain a key facilitator.

Key areas to focus on: 1) commentary regarding Internet usage trends, volume growth, and the pricing environment for CDN services; 2) Impact of current macro economy on IT purchasing; 3) U.S. and International revenue growth trends; 4) Net customer additions and churn management; and 5) ARPU.