Analyst Conference Summary


conference date: July 27, 2011 @ 1:30 PM Pacific Time
for quarter ending: June 30, 2011 (second quarter 2011)

Forward-looking statements

Overview: Good revenue growth and cash generation.

Basic data (GAAP) :

Revenue was $277.0 milion, up <1% sequentially from $276.0 million, but up 13% from $245.3 million in the year-earlier quarter.

Net income was $47.9 million, down 5% sequentially from $50.6 million, but up 26% from $38.1 million year-earlier.

EPS (earnings per share) were $0.25, down 4% sequentially from $0.26, but up 25% from $0.20 year-earlier.

Comparisons: Q1 2011 AKAM summary; Q2 2010 AKAM summary


Most likely range is $273 to $283 million revenue in Q3, with gross margins down about 1%.

Conference Highlights:

Set record for most new customers won ever in a quarter. However, knows did not meet some analysts' high expectations despite being at high end of guidance. Rate of traffic growth currently is not greater than the declining pricing.

Non-GAAP normalized net income was $65.8 million, up 1% sequentially, but down 9% from $72.2 million year-earlier. Normalized EPS was $0.35, up sequentially from $0.34, but down from $0.38 year-earlier. Excludes $13.6 million for stock-based compensation.

There was a negative impact from a higher than expected tax rate. This was due to network investments outside the U.S. About $5 million or $0.03 per share. But believes investment outside North America must be done to capture future demand. Tax rate will be 35% for rest of year, but should go closer to low 30s long run.

Enterprise vertical grew 28% y/y and 4% sequentially. Commerce vertical up 21% y/y, but down 1% sequentially. Dynamic Site Accelerator (DSA) led growth.

Media and entertainment revenue grew 11% y/y, but dropped 1% sequentially. Not yet seen accelerated rate of traffic growth we saw in 2010.

High tech vertical up 1% y/y and 2% sequentially. Public sector up 11% y/y and 5% sequentially.

Non-GAAP EBITDA was $126.2 million, down 2% sequentially, up 13% y/y. Cash from operations was $111.8 million. Cash and equivalents balance ended at $1.3 billion. $50.5 million was used to repurchase stock. $41.3 million total depreciation and amortization costs. $42.5 million spent on capital expenses.

Resellers accounted for 19% of revenue. International sales were 30% of reenue. Value added solutions contributed 58% of revenue.

68% GAAP gross margin.

Cost of revenues was $89.6 million. R&D expense $11.0 million. Sales and marketing $52.8 million. General and administration $46.0 million. Amortization $4.3 million. Leaving operating income of $73.2 million. Interest income was $3.1 million. Income tax provision $28.3 million.

Believe 4 key drivers for Akamai's growth: cloud computing, security, new connected devices, and richer media.


Value added services 58%, same as Q1? Looking y/y, value added growing 20% faster. The ratio was stable Q1 to Q2 because of seasonality in commerce vertical.

Co-location and bandwidth costs? We are seeing cost declines for bandwidth. Co-location prices vary by market. Some building of the network outside the U.S. has increased co-location costs.

Slower international growth despite investments? We have opened up 5 new markets in the last 6 months. That shifts depreciation and costs of running to outside the U.S. We have not met our international growth expectations, we need to do better, and believe our investments will allow for that future growth. Part of the trend is for businesses to need to be globally connected. Macro headwinds were in Japan and Spain.

Seasonal traffic patterns, reason for conservative outlook? Traffic has grown, its the rate. It has accelerated more recently, but not as much as at this time last year, so we are conservative about our outlook, which we think is realistic.

On content delivery, is it a lack of content or a lack of consumer demand? It appears to be some of both. We are not in a retrenchment, but there is a question about how to monetize content on the Internet, which slows the availability of content.

Do you think customers can switch easily between CDN providers, and therefor switch easily to lower prices? We have always said this is a very competitive market, there are some costs to switching providers.

Might you license technology to carriers? We always look for better ways to work with networks.

Media segment price decline trends? Typical rate of price declines in Q2.

We continue to see huge demand from our customers for wireless solutions because of the large variety of devices.

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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. We try not to make errors, but it is possible. Before making or terminating an investment you should always verify any factual basis of your decision.

Copyright 2011 William P. Meyers