Akamai’s First Quarter Beats, But Traders Unimpressed With Guidance

April 27th, 2011 by · 2 Comments

Content delivery giant, or leading cloud optimization provider as they like to be called these days, Akamai (NASDAQ:AKAM, news, filings) reported its first quarter earnings today after the market closed.  While they managed to beat both their own guidance and analyst expectations on both earnings per share and revenue, the stock is down 10% after hours.  Traders apparently aren’t happy with the forward guidance company management gave on the conference call.  Here’s a quick rundown of the numbers in context of the past four quarters:

$ in millions Q1/10 Q2/10 Q3/10 Q4/10 Q1/11 Q2/11 Guidance
Revenue 240.0 245.3 253.6 284.7 276.0 270-280
COS 67.4 71.8 77.8 86.2 89.0
SG&A+R&D 102.4 112.5 112.6 121.8 109.9
Gross Margin 71.9% 70.7% 69.3% 69.7% 67.8% 67-68%
Adj.  EPS 0.35 0.34 0.34 0.40 0.38 $0.34-0.37

Revenues: The first quarter is seasonally weak relative to the fourth, and hence the sequential decline in revenues was entirely expected, and the company beat their own guidance range of $265-275M and the composite street estimate of $272 with 15% growth over the same quarter last year.  Guidance of $270-280M was a bit lower than some expected, which the company chalked up to the effects of higher renewal activity in the first quarter.  The company also continued to refuse to give specific annual guidance, which didn’t help reassure analysts on the call.  Traffic growth, which has been so strong, is moderating somewhat this year – an effect which can possibly be chalked up in part to that part of the Netflix traffic that is going to Level 3 now.

EPS and Margins: As you can see, gross margins fell sequentially, although EBITDA margins rose as sales and marketing expenses were down sharply sequentially.  All that added up to earnings per share of $0.38, which also exceeded guidance of $0.35-0.37 and analyst expectations of $0.37.  But costs going forward will slow this number down, and projections for Q2 were for a sequential decline.

Share Buyback: Everyone loves a stock buyback, and today Akamai announced another extension of $150M for their stock buyback program.  In the first quarter they spent about $42M on the program.

Conclusions: Since the company’s Q4 earnings report, the market hasn’t been as high on Akamai as they were last year as revenue growth appears to be moderating.  This quarter’s results were similar – strong but not spectacular, and the high multiples they had been getting required continued spectacular results to maintain.  That said, Akamai’s results remain strong, traders or no traders.

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Categories: Cloud Computing · Content Distribution · Financials

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2 Comments So Far

  • carlk says:

    Wait a second, did they abandon their “VALUE ADDED” spiel on the call too? If they clicked their heels three times while saying it in the past, their stock would rise at least ten percent. I still think that was the “code word” for how they might violate “privacy issues” by using IP addresses to data mine internet use patterns without telling anyone, but sharing ad revenues with ISP’s who let their servers dwell on their premises for free in some cases.

    And, I can’t stop thinking about how buy side analysts along with Motley Fools were pumping relentlessly to TRADERS alike how Akamai’s Netflix loss wasn’t a loss at all!

    Traders or no traders; Akamai owners are beginning to appear as “BAG HOLDERS!”

  • Mark says:

    “who let their servers dwell on their premises for free in some cases.”

    You have it backwards. Akamai pay’s ISP to colocate their equipment. ISP’s don’t pay Akamai.

    I’m dumbfounded by people who think ISP’s pay Akamai. Why the hell would they? Rackspace is typically far far more expensive than the peanuts ISP’s save on transport/tranist/peering.

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