Thursday, July 29, 2010

Akamai Technologies (AKAM) - Good Results in Q2, but High Expectations and Slight Guidedown

Yesterday was a very busy day so I did not catch up on which companies were reporting until late into the night.  I tend to cull all positions going into earnings but Akamai Technologies (AKAM) was only a 1.3% exposure, so at that weighting I'm not sure I would have done much to the position.  Much like Netflix (NFLX) I found the report quite good, but with high valuation and a stock full of renters rather than owners, expectations got too high and the stock is punished.  In this case AKAM fell about 9% early in after hours trading last night but rallied later in the evening to fall 5%.  Looking at the chart, we see support right around where it closed the AH session at just under $42.  To avoid the Netflix fate we do not want to see more than 1-2 days of closes below this 50 day moving average.

If indeed it can hold this level AND the S&P 500 holds 1100 (because almost all stocks now move in monolith) a good buying opportunity may present itself.  If it cannot hold this level and the S&P 500 breaks 1100 than the student body will run left and most likely, near term hope will be lost.  Simple as that.

I would not read too much into the "guide down" as I expect this is the typical game of set the bar low, so ti can be beat and we can all clap like seals that the company 'beat expectations' (that it set) in 90 days.

Via Reuters:

  • Akamai Technologies Inc's (AKAM) business outlook disappointed investors who expected greater profit from the growing popularity of online entertainment, sending the shares down 5% after-hours on Wednesday.  Higher costs also worried some analysts, although the company said the investment was crucial to support growing demand for online entertainment like high-definition movie downloads and real-time streaming of sports events. (this is the push pull between the Street's demands that a company only look at its business in 90 day periods and run a business to "the estimates" versus any company who makes longer term investments which might hurt near term profits but actyally benefit the company in the long run
  • Second-quarter net profit rose to $38 million from $36 million a year earlier. Earnings excluding special items was 34 cents a share, matching expectationsQuarterly revenue rose 20% from a year earlier to $245 million, it said. That was also roughly in line with the average analyst forecast of $243 million.
  • Akamai, which helps media companies deliver online entertainment by navigating less-congested routes over the Web, said it expects earnings in the current quarter, excluding items, to be about 32 cents to 34 cents.  Analysts on average expected profit excluding items of 34 cents.
  • The company also raised its capital spending forecast for the full year to 17% of revenue from a previous range of 13 to 16%, after reporting higher costs in the second quarter.
  • Some analysts said the sell-off was overdone considering second-quarter results were solid, albeit in line with expectations. 
  • "They were a little higher than expected on expenses and capex. But we're also getting into this situation where dreams are always better than reality. We've seen this with other companies that have reported this quarter, where no matter how good the numbers, people are selling on the news," said Donna Jaegers, analyst at D.A. Davidson & Co.  "I would expect the shares to bounce back tomorrow," she said. "I thought the second-quarter numbers were very, very strong."
  • It also said pricing had stabilized, soothing concerns that increasing competition from rivals like Limelight Networks Inc (LLNW) and Level 3 Communications Inc (LVLT) could hurt its profitability.  (this concern has been hanging over the head of AKAM for a good decade - we even wrote about it in 2007!)  [Oct 5, 2007: News Flow Just Never Gets Better for Akamai Technologies]
"Telecom giant Level 3 Communications is looking to boost its position in the content delivery network (CDN) industry by undercutting competitors."

The above quote was from 2007, not 2010.  It will be the same quote used in 2013.

Long Akamai Technologies in fund; no personal position

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