On July 28 Akamai Technologies held its analyst conference call and reported second quarter 2010 results. You can read my detailed notes on the call at Akamai Q2 2010 Analyst Conference Call.
Before the call there was a lot of buzz about spectacular results fueled by people watching the World Cup over the Internet, which means on Akamai-accelerated services. As management has said in the past, no one event, not even the World Cup, is going to have a significant impact on revenue in a quarter. In Q4s the holiday-driven advertisement traffic does push up Akamai's numbers, but again this is a macro effect, not due to any one customer.
Akamai had a high P/E ratio comparted to most other growing technology companies both before and after the non-event driven spike, but it is not high by historic standards. Rather, the other tech stocks are low. Still, selling a high P/E stock and buying an all-other-thing-equal but a low P/E stock is a good way to reduce risk. So the sell off after Q2 results were reported is not a big surprise. The results were good, but some short-term investors were deluding themselves as to how good. The stock was in the 40s in most of June and July, only to fall below 38 after the conference call.
Aside from P/Es returning to normal, which will help all stocks, Akamai has a lot to recommend it. The internet continues to grow and commercial customers need reliable, fast delivery. Whether it is ads, online stores, or video feeds, the Internet works much better over Akamai's system. In the future revenues should grow more quickly than either Akamai's capital expenditures (mainly on servers) or operating expenses. The increased use of high-bandwidth mobile devices will also grow Akamai revenues.
On the negative side AKAM's real tax rate is going up, mostly in 2011, as it uses up its NOLs (losses from startup years).
But keep in mind this growth will be relatively steady, with extra acceleration every fourth quarter. One time events won't matter too much.
And keep diversified!
See also http://www.akamai.com/