Akamai Holds Good On Its Promise

Akamai has achieved its target of $1 billion in annual revenue and set itself the goal of achieving annual revenue of $5 billion. Recent results show that Akamai’s media and entertainment revenue has rebounded dramatically. To increase it even more, Akamai has over the past quarter renewed its long-term deals with Netflix and several other top media customers. Netflix accounts for about 20% of peak U.S. Internet traffic, and this deal augurs well for Akamai.

Akamai in February reported fourth-quarter results that beat analyst estimates. Q4 revenue increased 19% y-o-y and 12% q-o-q to $284.7 million. Net income increased 31% y-o-y and 32% q-o-q to $52.5 million or $0.27 per share. Akamai ended the quarter with $1.2 billion in cash and repurchased shares worth $26.9 million. Gross margin was 70%, up one point from last quarter and down two points from last year. For the full year, revenue increased 19% to $1.02 billion and net income increased 17% to $171.2 million or $0.90 per share.

During the fourth quarter, sales outside North America represented 27% of total revenue, down one point from the prior quarter and from Q4 2009. International revenue grew 17% y-o-y and 11% sequentially.

Akamai’s reporting structure has changed slightly, with Commerce now split into Commerce B2C and Enterprise B2B. Commerce B2C revenue grew 28% q-o-q and 21% y-o-y as a result of the seasonal strength in the Advertising Decision solutions business as well as continued traction of its Dynamic Site solutions. Enterprise B2B revenue grew 13% q-o-q and 26% y-o-y as applications continued to shift to the cloud, and demand increased for optimization, performance, and security solutions. Public sector revenue grew 30% y-o-y and was down one point sequentially. Revenue from the company’s high-tech customers grew 4% sequentially and was roughly consistent with Q4 2009 levels.

Media and Entertainment revenue in the fourth quarter grew by 25% y-o-y and 10% sequentially. Trefis Team on Forbes reports that

“The number of Akamai’s media content customers has increased from an estimated 881 in 2008 to 1,000 in 2010, mainly attributable to growth in online media consumption, particularly in HD video, coupled with increased Internet users and broadband penetration. We expect this trend to continue, led by Akamai’s strong distribution model and competitive prices to attract more customers… Akamai has more than 70,000 servers globally, which enables Akamai’s infrastructure to be within the last mile no matter where a customer’s end user is located. This difference in Akamai’s approach over the centralized data center approach taken by many of Akamai’s competitors is what differentiates Akamai from them, and affords them significant advantages in terms of driving better speed, scalability, reliability, and lower costs.”

No one other than Akamai has the kind of brain trust in the area on Internet traffic optimization and I had been confident of a Netflix–Akamai deal. The deal with Netflix covers its streaming needs in North America as well as international markets.

Akamai said it expects the long-term contracts it recently signed to drive significant growth later in the year, but these contracts will represent a step down in revenue for Q1 due to normal renewal price adjustments. It expects first-quarter revenue of $265 million to $275 million, up 10% to 15% from Q1 last year, and EPS of $0.35 to $0.37. Analysts had expected first-quarter revenue of $283 million and EPS of $0.38. The company expects gross margin of 68% to 69%, declining mostly due to increased depreciation from 2010 investments. Akamai is trading around $37.21 with market cap of about $7 billion. It hit a 52-week high of $54.65 on December 8.