Friday, February 4, 2011

Akamai Technologies Inc. (NASDAQ: AKAM): Q4 Earnings Preview 2010

Akamai Technologies Inc. (NASDAQ: AKAM) is scheduled to release its fourth-quarter earnings after the closing bell on Wednesday, February 9, 2011. Analysts, on average, expect the company to report earnings of 38 cents per share on revenue of $283.08 million. In the year ago period, the company reported earnings of 46 cents per share on revenue of $238.30 million.

Akamai supports the delivery of content like music and video over the Internet by navigating less-congested network routes. It also helps with online shopping sites, and the company is usually paid based on how much traffic it handles.

In the preceding third quarter, the Cambridge, Massachusetts-based company's net income was $39.7 million or $0.21 per share, compared to $32.7 million or $0.18 per share in the prior year quarter. Excluding items, normalized net income grew to $64.2 million or $0.34 per share from $52.3 million or $0.28 per share in the year-ago quarter. Revenue increased 23% to $253.6 million from $206.5 million in the same quarter last year.

At its last earnings call in October, the company said that it expects fourth quarter revenue of $272 million to $285 million and earnings per share of $0.35 to $0.38.  Cash gross margins are expected to be in the range of 80% to 81%, and GAAP gross margins, including equity compensation, will remain around 59%, the company said. The fourth quarter tends to be its strongest quarter.

Looking ahead to fiscal 2011, the company said that the current Street consensus of 15% top line growth is probably a conservative estimate. 

Akamai is facing more competition from companies including Limelight, Level 3 Communications Inc. and Cotendo Inc. for CDNs, which distribute movies, music and software to computers on behalf of services such as Hulu LLC and Netflix Inc. (NASDAQ: NFLX). Shares of the company were battered after Level 3 Communications said in November that it was chosen as a primary content-delivery network for Netflix.

In December, the company disappointed investors hoping that the Internet content delivery company would raise its quarterly outlook, keeping forecasts unchanged while warning that pricing would fall. The company said that it expects pricing to fall "aggressively" ahead, confirming investors' fears that competition was intensifying. The company also said that an increase in traffic would make up for the fall in pricing, and forecast annual revenue to eventually rise to $5 billion. 

Also in December, the company lost a court ruling in its four-year patent battle with Limelight Networks Inc. over software that speeds delivery of Web videos. The U.S. Court of Appeals for the Federal Circuit in Washington said Limelight didn’t infringe a patent related to content delivery networks, or CDNs. U.S. District Judge Rya Zobel in Boston was correct to throw out a $45.5 million jury verdict that Akamai won in 2008.

Full Disclosure: None.
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