Akamai 2Q profit up, but is short of expectations

CAMBRIDGE, Mass. — Akamai Technologies Inc. says its second-quarter net income rose 5 percent as demand for its Internet caching services grew despite the recession, but results missed expectations and shares tumbled 11 percent after-hours.

Despite being in a major recession, net income in the three months ended June 30 grew to $36 million, or 19 cents per share, from $34 million, or 19 cents per share, in the same period a year ago. Akamai said its adjusted earnings per share totaled 40 cents per share in the latest period.

Revenue edged up to $205 million from $194 million a year ago.
The revenue and earnings results fell short of the expectations of analysts polled by Thomson Reuters, who, on average, forecast adjusted profit of 41 cents per share on $211 million in revenue.

Shares fell $2.40 to $18 in after-hours trading, after closing down a nickel at $20.40.

Many analysts are over reacting....

"Akamai's seeming infallibility is increasingly being exposed, as they take a more aggressive stance on pricing to hold share," Jefferies & Co. analyst Katherine Egbert told investors in a note Thursday.

She downgraded the stock to "Hold" from "Buy" and cut per price target to $20 from $25, adding, "It's unclear where the price bottom is, and the last time this type of pricing reset occurred, the stock did not recover."

Akamai, which provides technology for managing Web traffic, said late Wednesday that second-quarter earnings were up 5 percent year-over-year.

But its adjusted profit of 40 cents per share missed estimates by a penny, according to Thomson Reuters. And revenue fell short at $205 million, compared with the average forecast of $211 million.

Akamai, based in Cambridge, Mass., pointed out that the number of customers in recurring contracts at the end of the quarter was up 9 percent from the year before to a record 2,979.

Analysis

My take on Akamai, is that it was a steal a few months ago, when the stock came down to around $10/share and is on a steady comeback trend, having doubled its share price in that time to where it is now around $20/share.

Should the price come down again in the short term to around the $10/share level, I would buy this stock, as it shows strong fundamentals despite a major recession and increased price competition from its competitors.