Akamai is due to report earnings between 30-Oct-08 and 9-Nov-08.

AKAM’s stock price has been  hammered in the last four months, down from over $40 to $17. The masses are sure that competition will eat the lunch of this established leader and are pricing AKAM as if growth will be negative going forward.

View the full AKAM chart at Wikinvest

Fundamental View

Cheap on all metrics. Watch for slowing in growth.

• Lowest Price to free cash flow ever. FCF has increased every year since 2000.
• Lowest Price to sales since 2002.
• Slowing growth more than priced in.

Worst case scenario growth slows, margins squeezed from both sides as competitors squeeze the topline and costs rise despite falling  fibre costs. No upside earnings suprise in the next year and price falls to high single digits.  20% chance

Best scenario Good Q3 earnings and positive forward statements brings a super quick 50% return. 20% chance.

As a recent Foolish article summarised

…the Internet’s leading content delivery network, Akamai Technologies has colossal scale, legitimate intellectual property and a blue-chip roster of clients –

I’ll add excellent balance sheet, dominate edge delivery and most likley to win the current CDN battle, just as they have won for the last ten years .
Wiki Invest provides an excellent summary on AKAM.

Why Invest? From Q2 2008 earnings release Cash from operations was $69.8 million in the second quarter of 2008. Year to date cash from operations was $157.8 million, up 78 percent over the first half of 2007 cash from operations of $88.6 million. At the end of the second quarter of 2008, the Company had approximately $745 million in cash, cash equivalents and marketable securities.

Akamai Metrics
Q2 2008 Conference Call

Technical View

Falling Knife showing no signs of landing. Price significantly below 50dMA. Technically should wait for signs of consolidation and upswing.

Behavioral View

All that is left are long term investors (believers/future sellers) and people underwater wishing to off load AKAM as close to their buy price as possible (resistance). Many, including me, thought AKAM was good value at $30 and very little has changed since back in July. Competitors are competing, which considering the margins AKAM has and will always occur. Motley Fool Rule Breakers removing AKAM from their core holdings flags a crisis in confidence amongst investors. If Q3 is OK to good then AKAM is off to the races with a lot of short term players likley to jump on such a high profile company.

Q3 Preview

From Q2 Conference Call

“Looking more near term, the third quarter tends to be the seasonally slowest quarter for our customers, especially those that are most sensitive to the seasonal changes in traffic levels. And for the third quarter this year, we’re expecting revenue in the range of $193 million to $198 million. At the midpoint, that translates into 21% growth over Q3 of last year. But this revenue range, which is a bit wider than our typical guidance, we are expecting normalized earnings per diluted share for the third quarter in the range of $0.39 to $0.40. We expect gross margins to decline modestly by less than 1 point sequentially and EBITDA margins in the range of 46% to 47% for the quarter.”

Analysts Expectations

• 40 cents on $196M in sales
• 21% growth over next five years
• $1.65 for 2008 and $1.92 normalized eps for 2009

Last Post on AKAM

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