Last quarter Akamai's forward guidance described a contract renegotiation with a key customer everyone knew was Apple, and this week the buzz on the street has been that Apple is building its own CDN. But none of that actually slowed down Akamai at all this winter, as the company posted a big fourth quarter and offered strong Q1 guidance that included the impact of that renegotiation.
|$ in millions||Q4/12||Q1/13||Q2/13||Q3/13||Q4/13||Q1/14
|Gross Margin %||70.4%||67.2%||67.0%||66.6%||69.3%|
Revenues were boosted by a strong Christmas season across all regions, beating estimates and surpassing the high end of guidance. Guidance for the first quarter of 2014 was well above composite analyst expectations of $413M.
Higher revenues were accompanied by some gross margin expansion, leading to a big EBITDA number and adjusted earnings per share three pennies above expectations.
And as for Apple building its own, the company says such contemplations are always a part of the market, that it's not as easy as it looks, and that many who have tried have come back. Of course, not all do, but my own point is that even if a customer like Apple does take some of its infrastructure into its own hands, they tend to do so where it's already lower margin. They'll still be buying some from Akamai and other CDNs regardless, and what they don't buy on the CDN level they'll be buying from infrastructure vendors. But the impact on a nimble, well run company like Akamai will always be less than the market's knee-jerk, black-and-white reaction. They know this cycle as well as anyone, and have grown through it all in the past 15 years.
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