Wednesday, July 27, 2011

Akamai Technologies Inc. (NASDAQ: AKAM): Q2 Earnings Preview 2011

Akamai Technologies Inc. (NASDAQ: AKAM) is scheduled to release its second-quarter earnings after the closing bell on Wednesday, July 27, 2011. Analysts, on average, expect the company to report earnings of 36 cents per share on revenue of $277.98 million. In the year ago period, the company reported earnings of 34 cents per share on revenue of $245.32 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. (NASDAQ: NFLX).

In the preceding first quarter, the Cambridge, Massachusetts-based company's net income was $50.6 million, or 26 cents per share, compared to $40.9 million, or 22 cents per share in the year-ago quarter. Revenue rose to $276 million from $240 million. Analysts, on average, expected the company to report earnings of 37 cents per share on revenue of $372.03 million. . 

At its last earnings call in April, Akamai said that it expects second-quarter revenue in the range of $270.0 million to $280.0 million (10% to 14% year-over-year growth) for second quarter of 2011. Favorable foreign exchange is expected to have an impact of approximately $10 million on a year-over-year basis. Akamai expects cash gross margins to remain roughly stable at about 80% and GAAP gross margins to come in at 67%–68%. For the second quarter, Akamai expects operating expenses to increase by about $7 million to $8 million year over year, which will include the annual impact of budgeted salary increases. Akamai expects adjusted EBITDA margins in the range of 44% to 45%. Normalized EPS is expected in the 34 cents to 37 cents range, including tax charge in the range of $17 million to $21 million based on a full-year GAAP tax rate of about 32% to 33%. Akamai forecasts capital expenditure of approximately $50 million for the second quarter excluding equity compensation and expects capital expenditure for fiscal 2011 to be at the upper end or slightly above Akamai’s long-term model of 13% to 16% of revenue.

Akamai has benefite from increasing adoption of online services and cloud computing. The company has enjoyed double-digit year-over-year percentage revenue growth for the past four quarters. 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. 

The company is expanding its presence in Central and Eastern Europe (CEE). The company will extend its services to five countries in the region namely Czech Republic, Hungary, Poland, Romania and Slovakia. Akamai will also open a branch office in Krakow, Poland to support its CEE customers. Akamai is expected to benefit from the huge demand in the region. According to research firm, Forrester, the CEE region is estimated to reach overall Internet adoption rates of 54% by 2013.

However, Akamai is facing more competition from companies including Limelight Networks, Inc. (NASDAQ: LLNW), Level 3 Communications Inc. (NASDAQ: LVLT) and Cotendo Inc. for CDNs, which distribute movies, music and software to computers on behalf of services such as Hulu LLC and Netflix. 

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