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Akamai Key to Net’s Future

Posted on Thursday, Feb 14th 2008

On Feb 6, Akamai Technologies, Inc. (NASDAQ: AKAM) reported its Q4 and 2007 financial results that were way above its guidance, driven by unexpected strength in media and entertainment. In after hours trading, Akamai shares went up 87 cents, or 2.9%, to $30.60.

I had earlier covered Akamai as part of the Online Video Beneficiaries series. I have also done an interview with its founder, Tom Leighton.

Q4 revenue grew 46% y-o-y and 14% q-o-q to $183.2 million. GAAP net income went up 48% q-o-q to $35.9 million or $0.20 per diluted share. For full year, revenue grew 48% to $636.4 million. GAAP net income grew 76% to $101.0 million, or $0.56 per diluted share. GAAP gross margin was 74%, four points lower than 2006, but in line with its guidance.

The number of long-term customers at the end of Q4 was up by 29 to a record 2,645, up 13% y-o-y. However, this is lower than its recent net add numbers, partly due to churn related to completing the Nine Systems and Netli customer migration. Churn for the quarter was just over 4%. On the brighter side, the recurring revenue from these new customers was up by 30% y-o-y.

During the fourth quarter, international sales accounted for 23% of total revenue, about the same as the last quarter. Resellers accounted for 16% of total revenue, two points lower than the third quarter.

For 2008, Akamai raised its revenue guidance to between $800 million and $825 million, or 26% to 30% annual growth. It expects to see the downward trend in gross margins (due to pricing pressure from Level 3) to continue in 2008 but at a slower rate, offset by EBITDA improvement. For the first quarter, it expects revenue in the range of $186 million to $190 million, or 34% to 37% y-o-y growth and 2% to 4% sequential growth. Its stock is trading around $34 after hitting a 52-week low of $25.06 on January 22. Market cap is around $5.6 billion.

I own this stock, and will continue to say that Akamai is a great company, and as we continue to clog the internet with video and such, Akamai will continue to be a key piece of the technology puzzle to remove / prevent hotspots and congestion.

In fact, as one of my readers pointed out, those same ISPs that are supposed to be competing with Akamai, use Akamai’s technology to get performance out of their own networks. The threat from the pricing pressue, in my opinion, is highly overblown.

Chart for Akamai Technologies Inc. (AKAM)

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Because the stock is doing well the company is the key to the net’s future? The deliver content for a lot of big companies but their infrastructure is ancient and they have lagged behind in new technology.

They are a mature CDN, next generation CDNs and new technology will have a far greater impact on the potential of the internet to deliver rich user experiences than Akamai.

Ben Friday, February 15, 2008 at 10:20 PM PT