Tuesday, April 26, 2011

Akamai Technologies Inc. (NASDAQ: AKAM): Q1 Earnings Preview 2011

Akamai Technologies Inc. (NASDAQ: AKAM) is scheduled to release its first-quarter earnings after the closing bell on Wednesday, April 27, 2011. Analysts, on average, expect the company to report earnings of 37 cents per share on revenue of $372.03 million. In the year ago period, the company reported earnings of 35 cents per share on revenue of $240.03 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. Akamai handles 15 percent to 30 percent of all online traffic, according to its website, and the company counts more than half of the largest 500 U.S. Internet retailers as customers. The company delivers data for Apple Inc.’s (NASDAQ: AAPL) iTunes and streams video for Netflix Inc.

In the preceding fourth quarter, the Cambridge, Massachusetts-based company's net income was $52.5 million, or 27 cents per share, compared to $40.1 million, or 21 cents per share, in the year-earlier quarter. On an adjusted basis, the company earned 40 cents in the fourth quarter. Revenue increased 19% to $284.67 million from $238.31 million in the same quarter last year. Analysts, on average, expected the company to report earnings of 38 cents per share on revenue of $283.08 million. 

At its last earnings call in February, the company forecast first quarter normalized earnings of 35 cents to 37 cents per share and revenue of $265 million to $275 million.

Media content is rising at a significant pace.Akamai's technology is crucial for delivering high-definition video as online services like Netflix and Hulu explode in popularity pace as more video content moves online and video quality increases (HD video). The company has benefited from increase in e-commerce transactions and online video content. 

However, 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.

At its last earnings call in January, the company said that Akamai renewed long-term deals with eight out of 10 major media customers, including Netflix (NASDAQ: NFLX), but at lower prices that will hurt revenue in the first quarter.

Among other developments, IBM (NYSE: IBM) recently partnered with Akamai to accelerate the delivery of Web and cloud applications for customers by integrating its WebSphere technology with Akamai’s application delivery network. 

The company's stock currently trades at a forward P/E (fye Dec 31, 2012) of 22.55 and PEG ratio (5 yr expected) of 1.47. In terms of stock performance, Akamai shares have gained nearly 15 percent over the past year.

Full Disclosure: None.
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