Akamai Technologies: 3Q Earnings Could Bring Upside Surprise

Oct.26.11 | About: Akamai Technologies, (AKAM)


Akamai Technologies (NASDAQ:AKAM) is scheduled to report 3Q 2011 earnings after the close of trading on Wednesday, October 26. The Street estimate is for Adjusted Earnings Per Share (EPS) (per our methodology) of $0.33 per share, near the high-end of the range at $0.34 (Source: Yahoo! Finance). Revenues are seen climbing 10.0% to $278.87 million. During its 2Q conference call last July, Akamai predicted normalized (adjusted) EPS of $0.31 to $0.34 on revenue of between $273 and $283 million.

Note that the shares have sold off sharply in reaction to the prior three earnings releases. Last quarter, a slight miss on revenues sent the shares reeling in after-hours trading. But with the shares off more than 20% from the 2Q earnings release, the Street may be a bit more forgiving this time around. Expectations have also come down quite a bit, leaving the door open for a potential upside surprise.

Following the recent pullback, Akamai has been the subject of frequent takeover chatter, with possible suitors including Google (NASDAQ:GOOG) and IBM Corp. (NYSE:IBM). The company is also diversifying away from its content delivery network (CDN) business, seizing opportunities in cloud-computing and other growth area. Akamai is also seen benefiting from international expansion. Risks include recent pricing discounts and increasing competition from the likes of Limelight Networks (NASDAQ:LLNW) and Level 3 Communications (NASDAQ:LVLT).

Chart Review

-Akamai is more than 23% off the 52-week low of $18.25 established back on October 4. The 20-Day SMA recently crossed back above the 50-Day SMA – a sign of improving momentum.

-Near-term resistance is at $25, the lower end of the gap down following the prior earnings release. Above $25, there is room to run to $29.

-Support is at $23 (20-Day SMA), followed by $21.

click to enlarge

Click to enlarge

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.