On Wednesday we hear how the third quarter went for the dominant player in the CDN space, Akamai (NASDAQ:AKAM, news, filings). Well, we hear from Equinix (NASDAQ:EQIX, news, filings) on Tuesday of course, but after their pre-announcement there isn't much suspense left there. But it strikes me that Akamai and Equinix ended the third quarter in similar positions. Both are the nextgen leaders of their segments, both spent the past few quarters exceeding the expectations of the market and being rewarded for it, but both have yet to move their valuations beyond those reached 3 years ago or so.
As we saw with Equinix's miss, the market has little patience for any sort of weakness - whether real or perceived. Even Juniper's stock took an early hit despite a very solid report that traders thought wasn't quite positive enough with guidance. I think Akamai probably faces a similar audience on Wednesday: perform now or be punished. But let's take a quick look at the numbers to get a sense of where they're likely to be at.
|$ in millions||Q3/09||Q4/09||Q1/10||Q2/10||
|Adj. Fully Taxed EPS||0.28||0.34||0.35||0.34||0.32-0.34||0.34||0.38|
As you can see, analysts expect them to come in near the top of guidance, just like last quarter. The third quarter is of course a bit lighter in terms of traffic, whereas the fourth quarter is generally the company's strongest - and hence eyes will be scrutinizing guidance carefully. The company did guide gross margins lower due to expected network investments, but I'll bet they get lots of questions about it if they do come in at 69%.
Competitively, I don't get the feeling much has changed lately in the sector. Competitors may have gained a bit of ground recently, but I doubt it has seriously dented Akamai's armor. Mostly we are just looking at the pie getting bigger, and the growth we see or don't see will reflect on this quarters progress in that regard. I'd be surprised if Akamai missed its guidance, but as for expectations for Q4 I suspect traders will be very difficult to please.