Akamai (NASDAQ:AKAM, news, filings) reported its second quarter earnings today after the bell. The 800lb gorilla of the CDN space is following up on very powerful fourth and first quarters, sooner or later the pendulum must swing back right? Well, it didn’t swing back just yet, but this time Akamai only managed to hit the high end of its own guidance. What other providers wouldn’t give to hear themselves in that sentence… Here is a quick table of their second quarter 2010 results in the context of the prior four quarters:
| $ in millions | Q2/09 | Q3/09 | Q4/09 | Q1/10 | Q2/10 |
|---|---|---|---|---|---|
| Revenue | 204.6 | 206.5 | 238.3 | 240.0 | 245.3 |
| COS | 60.0 | 62.0 | 67.6 | 67.4 | 71.8 |
| SG&A+R&D | 86.0 | 89.7 | 104.4 | 102.4 | 112.5 |
| Gross Margin | 70.7% | 70.0% |
71.6% |
71.9% | 70.7% |
| Adj. Fully Taxed EPS | 0.29 | 0.28 | 0.34 | 0.35 | 0.34 |
Revenue grew again, hit the top of guidance ($236-246M), and beat the composite analyst number of $243 slightly. Earnings of $0.34 were at the top of guidance ($0.32-0.34) and level with the analyst number. So why is the stock down a couple bucks after hours? Ah, expectations… [EDIT: Barrons reports that foreign exchange headwinds held them back some, as has been the case with others with substantial European revenues in the sector.]
Costs were up, and hence margins retreated back to levels seen in the second quarter of last year – possibly more than some may have expected. We will have to wait for the earnings call to hear whether that reflects increasing competition or investment for future growth.
Certainly though, the rest of the field has adjusted to the new Akamai pricing that was unveiled last fall, and therefore big shifts in the balance of power were unlikely. Right now the CDN space seems to be enjoying an overall expansion, with all players benefiting. I’ll revisit that perception when Limelight reports though.
Akamai also appointed David Kenny as President. Mr. Kenny will report to CEO Paul Sagan and will be responsible for leading business operations, including the company’s product groups: global sales, services, and marketing; engineering; and networks and operations. He’s not actually a new face though, having served on the company’s Board of Directors for the past three years.
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If I am understanding this correctly-I believe I am-this company is beginning its phase to extinction from days gone by of internet free loading via P2P arrangements and last mile participants happy to give them free space to cache content for their captured end users on the consumer side.
Sounds like RBOCS and CABLES will be creating more onerous “access charges” for them now as a result of (3)’s “physical connections” going directly into media hubs and movie studios before distributing important video content globally across their backbone previously denigrated into dumb pipe.
May Motley Fools along with others be damned. I knew Donna getting warm to Jim was Donna somehow, finally catching on! Rather than Y2K’s Darth Veda of Telecom, Bob Rubin, this time, it was Big Jim Crowe who straightened Donna out. 😉
When will the King of CDN who owns the network at the same time, begin to see those SILLY AKAM MULTIPLES!
“this company is beginning its phase to extinction”
Revenue’s up 20% y/y, gross margins are 70%, cash is 1.1 billion and there’s no debt – clearly on the way to extinction
Heh, phase to extinction, path to transcendence, what’s the difference? 🙂
Their moat is sailing away, with their cash based in toxic student loans going with their moat. Have they implemented an inexpensive hedge in that bucket?
Up until now, this company has rode the internet as a “free loader” in partnership with ISP’s. The ISP’s on the other end, now have a new sheriff for bringing “large file” video content to their “end users.”
“Shift happens,” get used to it. IMO
@carlk: I am experiencing extreme difficulty in following what you’re saying. Donna and Jim together in a sailing moat. With student loans. And a sheriff. Or something.
Be happy, very happy, that you don’t understand carlk.
At risk of reading too much into / validating the carlk theory, why does a cdn need to own the huge, costly and capital intensive network…. Seems to me that akamai’s strategy of outsourcing inter-city pipes to someone else is workingmout very well. Instead of tying up capital digging ditches, etc, they focus on edge content distribution and have admirable ROI. Let’s L3-XO-Q-Sprint (and previously brw, iixc, wiltel, et al) fight the high cost, low return war… I made a similar point re Zayo — why buy the physical network if 2 or 4 strands and dwdm allows access to same revenue ?
If markets are efficient, with Wall Street valuing every “tick” correctly as a result of knowing in advance shifts in technology and/or regulatory schemes benefitting Company X over Y or Z, then not understanding me is a fine course of action.
This would also assume that Wall Street was always smarter than the people running the businesses inside complex eco systems. Astute and casual observers alike might buy into this, because after all, many times Wall Street is on the inside, and owners are beholden to them for financing, whereby sometimes they’re even major stakeholders in competing entities that were created to shake trees.
Then again, even when they have it right looking down the barrel of a major tectonic shift, main stream investors won’t learn about it or be encouraged to jump in with both feet, until many multiples after the fact, during a period where RISK became high again.
Other than that, we can always look for RobP to start a rumor that (3) will buy AKAM because their biz moat is so great, and capital is never a problem for (3)!
Lack of network control is certain to hurt AKAM over time. They needn’t spell it out any more clearly in their 10K.
http://www.sec.gov/Archives/edgar/data/1086222/000119312510044561/d10k.htm#tx26294_2
Jim Crowe’s comments about what cables decide to do were interesting at a minimum. Wall Street thinks they’re smarter than the great engineer, Jim Crowe, most of the time.
We’ll see who laughs last.
[re-posted to corrected thread]
Don’t confuse Risk Factors with reality – these are listed to support failure to disclose claims.
Back to AKAM, cableco’s and L3: two of three of these business models MAKE MONEY, the other, lead by a visionary, COMSUMES MONEY. It’s that simple….
Would it be “more perfect” if Microsoft made Intel Chips, HP hardware and every site on the Internet… Perhaps. But these is no financial model to do so… AKAM has this right – use capital for high value investments and leave ditch digging and 3am truck rolls to others.
By the way, just saw an article that L3 has blown up & reorg’d it’s Sales Team (again)