Akamai Beats Q3, Guidance Weak, Stock Jumps (AKAM)


Akamai Technologies (AKAM) beat expectations for Q3 and came in right in line with the guidance they issued three months ago. 

But that was three months ago; how do things look now that the economy is in the toilet? Akamai has guided significantly below consensus: Even including revenue from its new ad targeting acquisition, which hasn’t closed yet, Akamai expects Q4 sales of $202 million to $210 million, below consensus of $212 million; and EPS of $0.39-$0.41, below consensus of $0.43.

Why? CEO Paul Sagan said on the company’s conference call that the company wants to be prudent during the downturn, specifically around overage charges that its ecommerce customers may or may not ring up.

Shares jumped as much as 15% before the company issued guidance, and has settled to about a 12% after-hours jump.

LIVE Conference Call notes; refresh for the latest.

4:33 Waiting for call to begin.

4:36 Call starts. Going over disclaimers, etc.

4:38 CFO JD Sherman going over numbers. Commerce continued to be very strong, growing nearly 40% y/y.

4:38 International represented 26% of total revenue. International grew 36% y/y, negatively impacted due to stronger dollar sequentially.

4:39 Resellers accounted for 17% of revenue. Added 83 new new customers. Gross adds increased to 169 this quarter. Good quality signings from enterprise customers; over half coming from Stream OS, dynamic site solutions, app stuff.

4:40 $23,500 ARPU, up 14% from last year. Cash gross margins 81%, down about a point from last year and last quarter. Have stabilised with newer services.

4:41 Stock up 9.78% after hours to $15.15, says Google.

4:43 Still more stats from release.

4:45 No more detail on acquisition as it hasn’t closed (like guidance for next year). But will talk about during investor summit.

4:45 Clear that online advertising and consumer spending trends are softening. We think prudent to be cautious about revenue growth, and particularly commerce sector bursting. Also short term pressure on media streaming and download. But believe we have performance and cost advantage. Expect to see continued traction.

4:46 Expect revs $202-$210 million for q4, wider than normal range given currency, seasonality. At midpoint, 4% sequential, 12% growth over last year. Includes 4-5 million of revenue. Normalized EPS 39-41 cents.

4:47 FY revs $780-$788 milion EPS 1.60-1.62

4:48 Not comfortable giving guidance beyond Q4.

4:49 Many customers have been through tough financial times in the base. Working to give them as much advantage as possible from their online assets. Believe balance sheet will enable us to weather downturn.

4:50 How can innovate? Talking about lots of products and services.

4:51 Stock still up 11.6%.

4:51 Watch for customer and product announcements for new ad products in coming weeks. Also working with Microsoft (MSFT) for www.smoothhd.com.

4:53 Certainly going to be more cautious in the short term.

4:54 Q&A Begins

4:54 On Q4 guidance… expect 4-5 million of sequential currency headwind, plus 4-5 million Acerno? Yes, roughly offsetting pickup.

4:55 Trends in traffic growth rates, trends in pricing, as well as what’s happening with new business model type companies that’d been seeing weakness. What’s happening with some of them? Traffic continues to grow. Moderation in rate of growth; that was consistent, don’t expect to see rapid pickup of broadband and user speeds in this economy. Pricing in high volume media space will continue to go down; no expectation that will change. Starting to see some of the newer Web 2.0 in social space get into distress; done a very good job limiting exposure there. Not our customers, but affecting others in the industry. Our drive to move toward value added services.

4:58 Economic overhang has put pressure on budgets, cost consciousness.

5:00 Feel like the evolution with value-added services are helping.

5:02 Dynamic site solutions has strong affinity in commerce sector. Pockets of early adoption, aggressive adoption in social media.

5:07 Stock now up 15%.

5:08 A bit more cautious about holiday bursting in commerce. High 30% growth in that vertical in Q3, close to 50% in early half of the year, but most of focus is on the uncertainty about what the holiday season is going to bring.

5:11 Trying to not get out in front of headlights on good news. Best net new add quarter in a long time. Not going to get ahead of ourselves thinking there aren’t tougher times out there.

5:16 Won’t be saying a lot about new advertising product. Will be making some announcements over the quarter. First was required because we were making an acquisition. Will be talking about publishers, advertisers. Expect to get paid as customers make more money from more efficient ads. Not a SW licence model.

5:17 behavioural targeting has always had problems with scale. How will you get there? Knew we could get huge scale. Built technology to allow publishers and advertisers to make smarter decisions about how to place ads at huge scale instantly.

5:22 About 30% of revenue from contracts that have longer period commitments.

5:24 Stock now up 12%.

5:29 People very cautious but Internet still most important growth channel.

5:31 Have y/y declines in ecommerce in recent quarters in ME? Competitive landscape quite different. Media competitors for bit delivery don’t have a lot of functionality needed in the ecommerce vertical. What % take dynamic site acceleration? Don’t know.

5:35 Call over.