Akamai Shares Up After Strong Q3 And "In-Lineish" Guidance

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.

NOW WATCH: Tech Insider videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.

Tagged In

akamai media sai-us