Can Akamai Shock the Street Again?

Akamai Technologies (Nasdaq: AKAM  ) reports first-quarter earnings after the closing bell on Wednesday. Last time around, the company shocked the Street with superb cloud-computing and content-delivery sales that sent shares soaring more than 14% the next day. What will Akamai do for an encore?

The Wall Street consensus for the first quarter points to earnings of $0.38 per share on $310 million in sales. That's well within management's guidance range but down a little bit from what analysts were expecting before that blowout fourth-quarter report.

The fourth quarter was a turning point for Akamai. The company stumbled and bumbled in 2011. Share prices fell as much as 60% before bouncing back, but the last report has helped the stock beat the market in 2012.

One look at this chart should help you understand why investors lost faith in the former market darling -- and why the bandwagon is filling up again:

AKAM Profit Margin Chart

AKAM Profit Margin data by YCharts

The online traffic optimizer saw sales and margins falling in tandem last year but erased all the damage in the fourth quarter. The enterprise and commerce segments drove most of the recovery.

"We thought it would be a good holiday season," said CEO Paul Sagan. "It was an exceptional holiday season, and so commerce was very strong." This quarter might see some different heroes. "While it's too early to call it a trend, we did see very promising traffic growth in Q4 for our media solutions," said incoming CFO Jim Benson.

The company revamped its pricing strategy in January, and the impact from that move should be felt in this report. Akamai has traditionally commanded premium prices over content-delivery rivals Level 3 (Nasdaq: LVLT  ) and Limelight Networks (Nasdaq: LLNW  ) , but the January move put them all on a level playing field.

I don't know whether the other guys reacted with price cuts of their own or simply stayed the course. Sagan's comments about the competitive landscape here should give us some clues, and then the other competitors both report results next week. Ahead of these data points, my hunch is that Akamai reshuffled the entire market's pricing deck.

Fellow Fool Tim Beyers is afraid that Akamai may have lost its Rule Breaker DNA, and our high-growth service did indeed kick the stock out last summer. However, there's another Rule Breaking stock that seems poised to grow revenue and profits for years to come. Read further in our special free report, "Discover the Next Rule-Breaking Multibagger."

Fool contributor Anders Bylund holds no position in any of the companies mentioned. Check out Anders' holdings and bio, or follow him on Twitter and Google+. The Motley Fool has a disclosure policy.

We Fools don't all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1868774, ~/Articles/ArticleHandler.aspx, 8/28/2014 9:23:44 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement