Analyst Conference Summary


conference date: February 4, 2009 @ 1:30 PM Pacific Time
for quarter ending: December 31, 2008 (4th quarter)

Forward-looking statements

Overview: Growth continues despite economy and skeptics.

Basic data (GAAP) :

Revenue was $212.6 million, up 8% sequentially from $197.3 million and up 16% from $183.2 million year-earlier.

Net income was $40.5 million, up 22% sequentially from $33.4 million and up 13% from $35.9 million year-earlier.

EPS (earnings per share) were $0.22, up 22% sequentially from $.18 and up 10% from $0.20 year-earlier.


Q1 is typically seasonally weak. $205 to $212 million revenues expected. Q1 will have typical increase in operating expenses. $0.39 to $0.41 normalized earnings per share. Capital expenditures of $25 to $30 million. Acerno acquisition will result in larger amortization of intangibles in 2009.

Conference Highlights:

They are pleased with the growth in a "challenging" economy. Our strong cash flow allows us to continue to invest in new solutions for customers. However, we are taking a cautious approach to 2009 due to the economic turmoil.

Normalized net income, a non-GAAP measure, was $82.2 million or $0.44 per share, up 11% sequentially, 8% year over year. EBITDA was $100.3 million, up 11% sequentially from $90.5 million and up 15% $86.9 million year-earlier.

Long-term customers increased by 50 to 2858 (excludes acerno customers). Churn was under 4%. Average revenue per customer $24,000.

81% cash gross margin. GAAP gross margin 72%, down y/y due to increased depreciation.

Resellers accounted for 17% of sales. Non-U.S. sales were 25% of sales.

Results includes acerno after it was acquired on November 3; about $6.9 million in revenue. That was better than plan.

E-commerce vertical grew 12% sequentially. Media and Entertainment revenue grew 8%. High Tech vertical grew 6%. All these stats exclude Acerno, which is mainly e-commerce.

Stronger dollar had about a $5 million negative impact on revenues.

Cash, equivalents and investments ended at $772 million. Cash from operations was $92 million. $20.4 million used for capital expenditures.

Operating expenses and costs were $157.7 million, including: $60.7 million cost of revenues; R&D $10.5 million; sales and marketing $45.2 million; general and administrative $35.2 million; amortization $4 million, restructuring $2 million. Interest income was negative $4.8 million. $19.5 million provision for income taxes.

Stock based compensation expense was $16.7 million.

Headcount reduced by about 100 in the quarter.

Customers continue to invest in their online businesses and depend on Akamai for success. Akamai is a player in cloud computing. In advertising dollars are fleeing to paid-for-performance solutions. Signed a major deal with a financial services firm in the quarter. Online audiences continue to grow, and are migrating to high-speed connections.

We have a continuing very close relationship with Apple, which was recently extended for a multi-year term.


Percent of revenue from value added services? Was about 40% last quarter, could be near 50%, but will not break out quarterly.

Value added services competitors? None, some try to do it with hardware but that does not really work.

Bursting? We saw higher than average bursting in commerce in Q4. But nothing unusual.

Online video new delivery methods? We are moving to a world where TV is over IT and is shown on the wide-screen in the home. We believe these types of things will be a catalyst to our growth, but we don't know the timing.

Online business was negative, how does that correlate with your increased revenues? There are different statistics out there. Many of our customers had strong Q4s. Maybe a lower percentage of browsers converted to sales, we don't know.

Traffic volumes versus pricing? We are seeing our customers are interested in driving down unit costs. We drive down our own costs so we can maintain margins while accommodating our customers. We win volume deals with discounts, but then upsell value added services.

Acerno? Acerno will be a more seasonal business because of heavy ad sales in Q4.

Advertising decisions solutions? We have been delivering ads for portals and ad networks for years. Everyone is trying to get to interested audiences, not impressions. We believe we can create a full suite to optimize for all players, including publishers. We will introduce acerno to our top commerce customers, who hopefully will join the data coop.

We achieve the billion-dollar model margins in 2008 even at a $800 million run rate. We think this model will hold.

Billion dollar plan in 2009 or 2010? Depends on the economic environment. We know how to get there, we don't know the timing in this environment. Believe EBITDA margin can be in high 40s.

Did you see delays in signings? We had strong numbers and quality of adds in Q4, not much in the way of delayed deals. There is still a lot of wallet spend for us to go after, which we do by demonstrating our strong ROI.

Has growth of revenue per customer stopped? That is heavily influenced by Media and Entertainment segment, which has paused in growth. We will sell into our customers, and that will increase per customer long term. Acerno customers average lower than our customers, so that will dilute that statistic in Q1.

Auction rate securities issues? Settled with one fund manager that restores liquidity in 2010 for $75 million.$175 million is still illiquid.

It is possible that by the end of 2009 we will have grown employees back to Q3 2008 numbers. Our restructuring put us in the position to invest in more effective areas.

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Copyright 2009 William P. Meyers