Monday, May 3, 2010

Akamai Q1 Upside Surprise

Akamai (AKAM) had a kickass first quarter of 2010. Q1 is usually a down quarter for the Internet delivery acceleration company because there is a fall off advertising. Making sure that ads get delivered efficiently along with the other content of web pages is a major task for Akamai. Also many sell-side (brokerage house) analysts did not like Akamai's lowering of its prices to attract more volume in 2009.

But revenue was $240.0 million in Q1, up 1% sequentially from $238.3 million, and up 14% from $210.4 million in Q1 of 2009. Net income was $40.9 million, up 2% sequentially from $40.1 million, and up 10% from $37.1 million year-earlier. GAAP EPS (earnings per share) were $0.22, up 5% sequentially from $0.21, and up 10% from $0.20 year-earlier.

In other words, by helping its customers with lower prices, Akamai helped itself.

Although I like GAAP numbers because they are usually conservative, in Akamai's case the cash position is better than normal compared to GAAP. Cash from operations was $87.8 million, compared to net income of $40.9 million. Of course AKAM continues to invest heavily in iteslf: capital expenses in the quarter were $35.1. My guess is this is very well-deployed capital. Most of it pays for servers that are expanding Akamai's global reach. 78% of revenues are still from the U.S.

In its startup period Akamia lost money, accumulating NOLs (net offsetting losses). It has been using the NOLs these last few years to lower its tax rate. The NOLs run out this year, so its cash tax rate will go up. I'd rather make profits and pay taxes than accumulate losses.

There are a lot of companies trying to compete with Akamai, so it does not constitute a risk-free investment. So far, however, no company has come close to being able to match Akamai at Internet content delivery. While I would not describe Akamai's current stock price as cheap, it is likely to seem so later as Internet video delivery picks up steam, to Akamai's benefit.

See also my Akamai Q1 2010 analyst conference summary for April 28, 2010.

I have been a long-term Akamai investor since January 2008. My own business includes technology consulting and buy-side analysis.

See also
Akamai at Wikipedia
NASDAQ Akamai summary page

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