Quick take: Akamai beat the Street on revenue and profit by a handy amount. The content delivery network reported $183.2 million of Q4 revenue, up 46% y/y, beating the Street’s $175 million consensus, and 41 cents per share normalized net income, beating the Street’s 37 cents per share estimate. Shares up 2%-4% after hours. Release.
Call summary: Execs say no impact from slowing economy — if anything, Akamai might benefit as more stuff goes online. Still working with Apple on iTunes, including movie rentals. HD video on the web won’t be a factor for several years. Looking for big deals with lots of add-on services, not trying to compete on price. P2P will play into Akamai’s existing offerings, not a standalone service.
Live notes from the earnings call:
4:31 Upbeat classical music.
4:34 Call begins. Sagan, Sherman on the call. Standard safe harbor disclaimer.
4:36 No comment on legal issues w/ Limelight. Sagan has voice issues. Sorry!
4:37 Sagan going over Q4 numbers from release. (We’ve summarized above.) Integrated three acquisitions: 9 Systems, Netli, RedSwoosh. Integrated StreamOS, Akamai protocol for application acceleration.
4:38 Going over customer list. Seven of top 10 social networks, 9 of top 10 auto makers, 75 of top 100 e-tailers. Working with Apple to support rollout of new movie service.
4:39 More numbers. 48% revenue growth, leverage/scalability of model w/ expanding operating margins.
4:44 More numbers. 29 net new customers.
4:45 More numbers. Capex $15.9 million, for full year 16% of revenue, in line with guidance. For year, rev from intl accounts increased to 23%, resellers 18%.
4:46 Normalized net income, GAAP net income, etc. All on release and supplemental sheet on IR website.
4:47 Ended 2007 with fantastic quarter that rounded out a tremendous year. 2008: Guided to 25% to 30% growth for 2008. Raising to $800 – $825 million, or 26% to 30% growth. Expect profits to grow with; normalized EPS 1.65 to 1.70. Same gross margin trends downward, but at slower rate. Offset by EBITDA improvement. Expect cash gross margins to go down 2 points, while EBITDA margins will expand by 2 points. Capex will be about 16% of revenue again, with most expense tied to first half of the year.
4:50 Q1 guidance: $186-$190 million rev expected for Q1 – 34% to 37% growth. Patent infringement goes to trial, higher than normal legal expenses. Normalized EPS down slightly from Q4. Capex about 30-35 million.
4:52 Paul is back. Going over 2007 milestones. R&D, M&A, etc. Thrilled to be supporting Apple.
4:54 Tests with SAP show performance increases 24X.
4:55 Going to continue to invest in business. Remain committed to quality, etc. Remain on track for $1 billion in annual revenue by 2009.
4:57 Gross margin: Scale benefits tremendously. Pretty strong gross margin results. Depreciation was flat to down, real positive for us. Expect margins to trend lower next year, but at slower rate, offset by scaling. Where is P2P going in 2008? Never thought P2P was a standalone business. Looking to marry it to traditional CDN. As Paul has gone out, customers haven’t found anything in client delivery anything close to satisfactory. Still think we’re uniquely suited to add it to the network. Never announced a product rollout, not going to today, but will be an important driver in the future as an integrated solution.
4:59 Strong growth across many verticals. Media and entertainment beyond expectations. E-commerce huge. State of pipeline? Lots of entertainment content moving to IP world. HD concept gets people excited, but most people can’t consume it. More and more compelling video on Web in next 3-4 years.
5:03 New seasonality in media + entertainment. Q4 massive.
5:04 Ad serving? “UFO” rumour. We partner with our customers. We make ad delivery better. Number of things we already to. No plans to become an ad server, per se, and compete with any of our customers.
5:05 Pleased with gross profit given how service mix came in. How much guidance larger traffic vs. additional services? Looking for big deals. Focused on larger deals around apps acceleration, media solutions, etc. Focus on high value customers we think we can grow with over time. We win on performances, services, not patents. IP important to company, shareholder value, but not customers.
5:08 Lots of trouble with conference call phone lines. Weird. Wonder who gets paid for this stuff?
5:09 Finally, a call works! Revenue accelerated. Previously said you had seen traffic growth rates start to moderate. Has that reversed? Traffic growth strong, some has translated into revenue expansion. Would attribute Q4 upside not to HD web becoming a reality. That will impact business in 3-5 year horizon. Just a strong seasonal quarter that extended beyond commerce. Not factoring in any HD Web kicker.
5:12 Churn: about 4% in quarter? On churn side a little bit of pickup at end of year. Churning very small customers in general. Very much focused on penetrating much more deeply enterprise customers. Big jump in ARPU. Not looking at adding small customers by bushel: not a scalable model.
5:14 Internatinal: An important growth driver to future. U.S. has led SaaS growth. Investing in addl headcount in intl offices in Asia and Europe. Only thing on relative basis is that U.S. continues to grow so fast. Over time intl will do better. Will grow same way we grew here: in country, in language. Already have worldwide footprint.
5:21 No major pricing changes. Not trying to compete on price. Kind of same landscape we’ve been seeing.
5:23 Apps customers don’t count unless they’re more than 12 months. Now some longer ones.
5:24 Particular strength in games vertical? Saw very strong growth with gaming companies. People playing live games vs. neighbours, etc. Another strong driver in Q4.
5:26 Seeing media customers uptake stuff like Stream OS, other services. They’re focused on making money online. ARPU: Best sequential jump in a long time. How much due to attrition to smaller guys? Mostly driving usage across customer base.
5:32 What is impact of HD content in terms of rev, margins, etc.? Limited growth in 2008. Growing over next 5 years thanks to fibre to the home type Internet access. Model should remain the same, home that volume + results continue to rise. No economic model change? Incremental change, not a redesign of our network.
5:36 Any stabilisation in large deal CDN pricing? Trends very consistent all year, don’t expect to see any shift there.
5:37 Studios really couldn’t utilise HD yet. But at a larger context, studios appear to be trying a great variety of distribution models, etc. Do you think Hollywood is ready to standardize some mainstream consistent distribution or still experimenting? Hollywood has always had multiple distribution outlets once we moved from only having movie theatres. Looking to IP distribution, Apple’s iTunes movie rentals, etc. Any content, any time, any device. Opens exciting opps for us. Steady growth as broadband grows and pipe gets wider.
5:38 Call over.
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