Akamai: Back on the Advance

Investors will tell you that Akamai (Nasdaq: AKAM  ) has the most descriptive logo of any stock trading today. The company's emblazoned tsunami wave is perfectly reflective of the tumult shareholders have endured over the past year, as the stock has teetered between $9.25 and $23.58 a share.

If the stock gets within spitting distance of $24 today, it'll be because of last night's report. Akamai blew away estimates in generating $206.5 million in third-quarter revenue and $0.38 in non-GAAP diluted per-share earnings. Analysts had been calling for $0.35 per share on $199.4 million in revenue.

Skeptics will rightly argue that Akamai has seen slowing growth. Revenue was up just 5% over last year's Q3, equal to last quarter's growth rate. Non-GAAP earnings were down $0.02 year over year.

So what's the good news? Margins. GAAP gross margin fell a percentage point over last year, but that's a good number when you consider how competitive the high-volume file delivery business has become. Limelight Networks (Nasdaq: LLNW  ) , Level 3 (Nasdaq: LVLT  ) , and others have been cutting prices, forcing Akamai to do the same or risk losing longtime customers such as Apple (Nasdaq: AAPL  ) and Microsoft (Nasdaq: MSFT  ) .

That's an issue, but it would be a bigger issue if not for Akamai's other higher-margin services. CEO Paul Sagan told me in an interview that his company's growing network -- now 56,000 servers strong -- is increasingly delivering data essential for cloud computing.

His most high-profile example: Force.com, a platform for creating Web-based software developed by salesforce.com (NYSE: CRM  ) . Sagan told investors listening to last night's earnings conference call that the company presented at Akamai's customer conference, outlining a partnership whereby Akamai helps Force.com "deliver global performance and scale in the cloud."

That's good to hear. These are the sorts of deals we need to see more. Video and static file delivery is always going to be necessary, and Akamai will always play a role. But it isn't the future. High-performance, dynamic, browser-based cloud computing is the future. We need Akamai to deliver it.

Apple is a Motley Fool Stock Advisor selection. Microsoft is an Inside Value pick. Akamai and salesforce.com are Rule Breakers recommendations. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers had stock and options positions in Apple and a stock position in Akamai at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. The Fool's disclosure policy is sipping a nice cup of coffee on a cold day.


Read/Post Comments (3) | Recommend This Article (1)

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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.

  • Report this Comment On October 29, 2009, at 4:38 PM, Parkite wrote:

    Blew away estimates??? They beat by $7M on the top line (3.5%) and 3 cents on the bottom line. For "blew away estimates" see Sandisk, Apple, Amazon, etc. This is just a mild beat.

  • Report this Comment On October 29, 2009, at 11:51 PM, GoNuke wrote:

    I agree with Parkite's reaction to the headline. If one employs hyperbole on a regular basis you lose the ability to send precise messages. I am pleased that Akamai's share value has appreciated. It is a bell weather for me.

    When I began investing in stock I took a lot of advice from the Motley Fool. All but one of the train wrecks in my portfolio are stocks that were highly touted by MF. After I got rid of most of those bad choices (many of which have not recovered from the lows of last march) I took what cash I got from the sale and invested it in stocks I chose without MF help. All of these have rebounced nicely. I was more than fully invested in March (I even borrowed money to take advantage of the terror that stalked the markets back then)

    The one MF stock that I decided to place some faith in was Akamai, buying more as its price fell. I couldn't keep up with its rapid descent so I stopped. I have kept it in my portfolio on the off-chance that some of the Gardiner's exuberance was partly based on wisdom.

    After rising about 5% in value today my holdings in Akamai are only down 25%.

    I shall keep it in the corner as a reminder that I did not become an investor because somebody left me a lot of money.

  • Report this Comment On October 29, 2009, at 11:54 PM, GoNuke wrote:

    Pardon me -after Akamai's 13% price jump today my holdings are only down 25%.

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