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Akamai Technologies, Inc.
Q4 Analysis

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By whatismyoption
February 20, 2008

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Past Margins
Transcript

In the fourth quarter, we earned $0.41 per diluted share on a normalized basis. That's a 52% increase year over year and a $0.07 increase over the prior quarter. Our normalized weighted average diluted share count for the fourth quarter was 186.7 million shares.

Big Charts with EPS and P/E: http://tinyurl.com/yqhk6l

Earnings Est Current Qtr
7-Dec 8-Mar 7-Dec 8-Dec
Avg. Estimate 0.37 0.38 1.29 1.66
Low Estimate 0.36 0.37 1.26 1.57
High Estimate 0.38 0.39 1.3 1.76
Year Ago EPS 0.27 0.28 0.88 1.29

http://au.finance.yahoo.com/q/ae?s=AKAM

Thoughts:
Analysts will be raising estimates .
When we spoke with you last fall, we guided to 25% to 30% growth for 2008. Given our strong fourth quarter, this implies a higher revenue number so we are raising our 2008 full year revenue guidance to between $800 million and $825 million, or 26% to 30% annual growth. We expect our normalized net income to grow in line with or slightly faster than our revenue growth, or 27% to 31% on a year-over-year basis. This implies normalized EPS in 2008 of $1.65 to $1.70, or 25% to 29% annual growth.

Previous earnings http://www.earnings.com/company.asp?client=cb&ticker=akam
No seasonality, good consistent growth. Occasional flat quarter
.41 .43 .47 .49 - 1.80 * p/e 30 =$54
Sell at 40 p/e - $72

Using cp's 20 p/e then $36 would be fair, so current price only offers small mos.

Here are some old thoughts I posted on the Akam Rule breaker board. They were part of a fun discussion.

Some quick bearish retorts.

There is lots of room for many players in the CDN space.
Yeah right, ‘cos technological companies all play so nicely in the same pit...not. They will throw sand in each others eyes, cry out to daddy and then get out and eat others lunch. Unfortunately due to all the sand throwing and competition for the best area of the sandpit their lunches will have a lot of sand on them and only half will be edible. All the excitement will attract other kids to the action. Result: Growth in content delivery will require continued high capital expenditures while revenues will not grow at the same pace. Margins will fall and thus net income will grow slower than hoped.

Akamai is the 800lb gorilla.
How many times has a technology innovator been overtaken by an imitator? As I don't have enough fingers or toes to count that high, maybe I should ask how many times as the innovator actually gone on to dominate long term? Thinking...thinking...ummm still thinking...you guys and gals will have to help me here as I can't think of one...hold that thought I've got one Dell.

To make this easier for myself I think I'll just use Karl's excellent post as a starting point.
1 - They're the one with the reputation.
Yeah the reputation for gouging a huge fees from their customers.

2 - They ARE the 800lb gorilla of CDN's
See above

3 - They've got that globally distributed network of servers that can't be beat. Talk about a barrier of entry for a business that wants to take on Akamai!
Yes they do have what Limelight's centralized network has shown to be an outdated model. Distributed simply means harder to maintain and more costly to update, which they'll need to continuously do. Companies like Google continuously demonstrate that the next best model is just around the corner.

4 - They've got an entrenched client base. (We need to explore how difficult it really is for those clients to switch though.)
There hasn't been a lot of competition up to now and their long term contracts have protected them from churn. Watch this space.

5 - They've got a big pile of banana's to let them get through a price war/margin crunch.
True, but how's that working out for Netflix? Being an owner of a company is a price war is not a good place to be. Tech CEO's and boards really need to read Sun Tzu's Art of War. They need to find ways to defeat their competition without the wars.

5a - That big pile of banana's lets them build out their capabilities as needed, whether by R&D, acquisitions (eating the minkeys that taste good!), or just building out the number of servers when/where needed.
Acquisitions are seldom accretive to owners. Yes they will continue to spend a fortune on both R&D and capital; however, ROI from these activities is far from assured.

6 - Patents to protect the tech that's the source of those bananas.
They really need to prove this by winning the Limelight lawsuit. Until then all bets are off.

6a - Remember that big pile of banana's? That means they can afford to protect the patents by tossing a lawsuit at any minkey that gets too annoying, and they're not afraid to do it!
I haven't seen any minkeys showing much fear yet. Venture capitalists have continued to give Limelight more capital despite the lawsuits.

Best
Dean
Long AKAM