Akamai Technologies: Earnings Preview

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

Akamai Technologies (NASDAQ:AKAM) is expected to report Q3 earnings after the market close on Wednesday, October 26, with a conference call scheduled for 4:30 pm ET.


The consensus estimate is 33c for EPS and $278.87M for revenue, according to First Call. Note that the shares have sold off sharply in reaction to the prior three earnings releases. During its Q2 conference call last July, Akamai predicted adjusted EPS of 31c-34c on revenue of between $273M-$283M. Akamai has been the subject of frequent takeover chatter, with possible suitors including Google (NASDAQ:GOOG) and IBM. The company is also diversifying away from its content delivery network, or CDN, business, seizing opportunities in cloud-computing and other growth area. This earnings call will have investors/analysts closely watching the pricing pressures that Akamai has been facing from competitors such as Limelight Networks (NASDAQ:LLNW), InterNAP Network Services (NASDAQ:INAP) and Level 3 (NASDAQ:LVLT) for its content delivery network service and Cotendo for its value-added services. Keep an eye out for any signs of a slowdown in customer additions as telecom providers like AT&T (NYSE:T) have started to venture into providing their own CDN services.

Analyst Views

Citigroup is looking for $278M in revenue, a modest deceleration in revenue growth from Q2; $120M in EBITDA, with the EBITDA margin declining 200 bps year-over-year to 43.0%; and 33c in normalized EPS. These estimates are essentially in-line with the Street and within the guidance range. Citi's gross margin estimate is 79.0% vs. 79.8% in Q1 and Q2 and 80.8% in Q3 of 2010. The GM pressure is attributed to competitive pricing pressure in Akamai's Media & Entertainment vertical. Based on intra-quarter channel checks and Citi's model sensitivity work, the firm views Street Q3 estimates as reasonable. Street Q4 estimates of 39c on $310.53M seem a tad aggressive vs. what Citigroup expects to be a conservative Q4 guide range. Consensus for FY12 is $1.62 on $1.27B in revenue. Citigroup rates Akamai a Neutral with a $24 price target given its competitive pressures.