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Why Akamai Technologies, Inc. Stock Plunged Today

By Anders Bylund – Jul 26, 2017 at 1:31PM

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A solid second-quarter report was ignored as investors focused on soft revenue guidance for the next quarter.

What happened

Shares of Akamai Technologies (AKAM -0.17%) are plunging on Wednesday morning, trading down by 14% near 1 p.m, EDT.

So what

The cloud-based content-delivery specialist reported second-quarter results on Tuesday night. Earnings fell 3% year over year, to $0.62 per share, while top-line sales increased 6.5%, to land at $609 million. Both results exceeded Wall Street's consensus estimates, but shares fell anyway because management's third-quarter sales guidance came in below expectations.

The Street was looking for next-quarter revenues near $619 million, but the official guidance range topped out at $616 million. Akamai's non-GAAP earnings guidance, on the other hand, was right in line with Wall Street's expectations at roughly $0.61 per share.

Woman watches a large red arrow crashing through the floor she's standing on.

Image source: Getty Images.

Now what

Investors were spooked by a soft revenue forecast, to the point of ignoring perfectly solid second-quarter results and a respectable third-quarter bottom-line projection. The revenue guidance includes about $3 million of negative currency-exchange effects, and Akamai is up against a difficult year-over-year comparison since the third quarter of 2016 included online media streaming of the Rio Summer Olympics.

I would argue that the price drop today is an overreaction to a perfectly understandable revenue slowdown. Note that Akamai supplemented its sputtering content-delivery services with a 35% year-over-year jump in security sales, taking the whole company in a different direction. Investors would be smart to treat this drop as an invitation to learn more about Akamai, and maybe even start a long position.

Anders Bylund has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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