Color On Akamai's Quarter

| About: Akamai Technologies, (AKAM)

Couple of firms comment on Akamai Tech (NASDAQ:AKAM) this AM following results announced last night (see conference call transcript):

- Thomas Weisel notes revenue upside was driven by higher-than-expected monthly ARPU of $18.9K (up 8% q/q), versus their estimate of $18.4K, as existing customer usage grew faster than expected. In addition, the Nine Systems acquisition contributed $900K in revenue that was not in firm's estimate. Net new customers increased by 203 (78 organic, 125 from Nine Systems) bringing total customers to 2,347, while churn was 3.5% in the quarter.

For 1Q07 Akamai guided to revenue of $136-140mn and pro forma EPS of $0.28. This compares with the consensus estimates of $128.9mn and EPS of $0.27. Firm notes that their estimates (and most likely consensus) did not include roughly $4-5mn in contribution from Nine Systems and Netli (to close in March), which means core guidance exceeded their expectations by $2-5mn.

For 2007, the company guided to revenue of $610-625mn (42-46% growth) and pro forma EPS of $1.26-1.30. Firm notes that previous guidance had not included the impact of the Nine Systems and Netli acquisitions, which closed 2006 at roughly a $15mn revenue run rate each. Assuming a full year of Nine Systems and nine months of Netli contribution and a growth rate of 35% for those businesses, we estimate increased guidance includes $35mn due to acquisitions and $15mn of additional growth. EPS guidance of 50% growth assumes that gross margins will decline by 3% due to higher network depreciation and volume discounts, while EBITDA margins will improve by 4% due operating efficiencies.

Due to the solid execution and tremendous success of Akamai over the past two years, investor expectations remain high. TWP believes given the current valuation of AKAM shares, investors expect a solid beat and guidance raise every quarter over the near term. While they see some potential upside to the organic business, they think that in order to satisfy expectations for 2007 and 2008 the company will need to garner some upside from Nine Systems and Netli.

AKAM trades at a premium valuation of 16.7x 2007E EV/sales, 51x 2007E FCF and 44.3x 2007E pro forma EPS. TWP therefore believes that, at current prices, the shares are fairly valued and maintains Market Weight rating on the stock.

- Piper Jaffray says Akamai continues to experience robust growth across the board, driven by increased broadband adoption. Organic revenue growth was approximately 51% vs. approximately 47% last quarter. Firm expects strong macro trends to continue and Akamai now projects 42-46% (35-39% organic) growth in 2007 vs. 32-36% previously. Additionally, Akamai continues to experience solid operating leverage, with 42% EBITDA margins (vs. 37% in 4Q05).

While they expect Akamai to continue to deliver strong results with upside, they believe shares at current levels are fairly valued. For 2007, the firm moves their ests from $575M in revenues and $1.21 in PF EPS to $627M and $1.30. 2008 estimates increase from $730M and $1.59 to $850M and $1.81.
Target is raised to $58 from $48. Maintains Market Perform.

- Deutsche Bank notes they were again impressed with Akamai's results and outlook, which exceeded their expectations. Growth accelerated, with revenues up 52% (51% organically) over 4Q05. Firm would look to add to Akamai positions on any pullback as this is the single best fundamental growth story in their universe. Reiterates Buy and raising target to $64 from $59.

Firm believes Fy07 guidance is conservative and the potential exists for upside as revenue growth appears to be accelerating.

Notablecalls: Love this company as it stands right at the center of the bandwidth race. The stock traded as low as $54-$55 in after market action (closed at $56.95) but rebounded to around $55.80 later on.

I think the shares will be weak today as the core growth should have been somewhat stronger in order to justify current valuation levels. But as I already mentioned, I continue to like the company and the stock, so there will likely be a bounce after the mo-mo sellers are done.

akam

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Tagged: , Internet Software & Services, Earnings
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