Akamai shares are up 3% today (and were up more earlier this morning) after the company posted earnings last night.
Here’s Citi analyst Mark Mahaney’s take today:
AKAM Posted A Beat & In-Lineish Q3 — $254MM in rev, $114MM in EBITDA & $0.34 in Non-GAAP EPS was generally better than CIRA/Street at $250MM, $112MM/$114MM & $0.34/$0.33. Q4 Midpoint Revenue & EPS guidance of $279MM/$0.37 was relatively In-Lineish with Street @ $277MM/$0.38.
Fundamentals Were Mixed — Revenue growth accelerated to 23% Y/Y vs. Q2’s 20%. However, EBITDA margin declined 145 bps Y/Y to 45.0%. EBITDA growth (reasonable proxy for bottom line growth) was 19% Y/Y.
Key Positives & Negatives – Positives: 1) Mgmt saying “2011 Street estimates are conservative;” 2) Balanced Domestic & International and Media & eCommerce segment growth rates; 3) Improved Customer Metrics; 4) Very solid Balance Sheet with modest Share Repo; and 5) Continued VAS momentum. Negatives: 1) Gross Margin Under Pressure; 1) CapEx spend ramp & 2) Near-term bottom line pressure (revenue mix shift, rising investments).
Adjusting Estimates & PT — ’11 EPS goes from $1.65 to $1.63 due to lower Gross & EBITDA Margin assumptions (Media segment mix & CapEx). PT raised from $42 to $51 as we shift valuation framework to 2012– 26X ’12 EPS of $1.95.
We Reiterate Our Hold Rating — We view AKAM as a Core Internet Stock Holding, but would prefer an entry/adding price closer to $40, all else equal, which would provide 20%+upside to our target price. Our AKAM Core Thesis is: 1) Near-term, we view Akamai as a beneficiary of the secular growth in Online Advertising & Retail; 2) Medium-term, we believe that AKAM’s Value Added Services segment provides both a growth and margin P&L boost; & 3) Long term, we believe that HD Video is emerging as a new Secular Growth driver. Key risks: 1) Pricing competition on the CDN front; 2) New competitors (telcos, Amazon, etc.); & 3) The combined impact of the above two factors on AKAM’s long-term margins and growth rate.