Friday, October 29, 2010

Akamai Q3 2010 Analyst Conference Call

Akamai (AKAM), which provides accelerated Internet services to enterprises, showed some of its promise in Q3. Akamai's trailing P/E is still pretty pricy by my standards, but then I bought AKAM back during the recession when its PE was much more reasonable.

GAAP Revenue was $253.6 million, up 3% sequentially from $245.3 million and up 21% from $206.5 million in the year-earlier quarter. GAAP Net income was $39.7 million, up 4% sequentially from $38.1 million and up 21% from $32.7 million year-earlier. GAAP EPS (earnings per share) were $0.21, up 5% sequentially from $0.20 and up 17% from $0.18 year-earlier.

Using GAAP numbers, Akamai's PE as I write (stock price $51.60) is 63, using annualized Q3 earnings. NASDAQ is listing non-GAAP PE as 35 trailing (last 4 quarters) or 32 forward looking (predicted next 4 quarters). That is pricey compared to semiconductor growth stocks like Marvell (MRVL - trailing PE 13) and Microchip (MCHP - trailing PE 20), which I also own.

I like GAAP numbers for conservative investing, but it is true that for Akamai you might want to look at Q3 cash from operations of $118 million or EBITDA at $114 million.

Why the excitement over Akamai? In theory it could ramp profits faster than revenues, and with Internet usage continuing to vastly outpace economic growth, profits could grow rapidly. However, the promise of rapid profit growth eluded Akamai in 2009 and in 2010 until Q3.

Negative opinions of Akamai mainly come from over regard for competitors. For as long as I can remember, competitors were going to take significant business from Akamai in the next couple of years. A couple of years pass, and if anything Akamai has gained market share. Akamai seems to know how to maintain its market advantage without blowing too much money on R&D.

I would not buy Akamai at this price, but then I already own a reasonable amount. There is certainly an argument that this price will look cheap in a couple of years, maybe even by mid 2011. For a much more detailed look, see my Akamai Analyst Call Q3 2010 summary.

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