Akamai, the web content delivery and application gorilla, will report Q3 2009 on 28-Oct-09 AMC. Consensus forecasts is for $0.35 eps on $199.8M revenue. AKAM has excellent cash flow, a strong balance sheet and reasonable potential for growth for years to come. While competition continues to increase in the CDN space, Akamai continues to differentiate itself with higher value added services. Forward earnings forecasts in the internet information provider industry offer no reliability, but the overall growth in data and applications being served should provide enough market for several winners. Akamai remains the company to catch.

Q2 2009 Conference Call Transcript

Edited snips: Financial highlights for the second quarter include revenue of $204.6 million, an increase of 5% over the same period last year.
Normalized net income of $75.3 million or $0.40 per diluted share, down $0.01 or 2% from Q2 of last year, and we had very strong cash generation with a record $105 million of cash flow from operations in Q2. This increased our balance of cash equivalents to $927 million even after $17 million was used for share repurchase during the quarter.

value-added services increased strongly, especially late in Q2. We signed almost 200 brand new accounts to Akamai in the quarter, the highest number since the early days of the company, with a significant portion of these for our value-added services.

saw churn at above 5% in the quarter as compared to the 3% to 4% rates we saw in most of 2008. Churn continued to come primarily from smaller customers

Outlook: making significant investments for our future growth…. In this context, we expect cash gross margins will decline by about a point sequentially in Q3, as we continue our aggressive pricing strategy. We expect GAAP gross margins to decline by about 2 points sequentially, driven by increased depreciation. … Based on this, we expect normalized earnings per share for Q3 in the range of $0.33 to $0.36.

Analysts Earnings Estimates

The estimates have been falling all year, as Akamai faces strengthening competition. Zacks who use change in earnings forecasts as part of investment criteria maintains a Neutral recommendation of 3.  Akamai traditionally under-promise and over-deliver, with actual earning beating consensus in 12 of the last 18 quarters.

Financial Reports

• Akamai’s Q2 2009 Statement of Cash Flows at SEC Interactive Data highlights the 23% YoY increase in cash flow from operations, see chart below for summary.
• Q2 2009 Financial Results
• Q4 and 2008 Financial Press Release
• 2008 10K Annual Report
• More financial reports at Akamai

Not only is Akamai generating excellent and growing cash flow, they have a superb balance sheet with $927 Million in cash, equivalents and marketable securities. Their only debt is $199,855k of 1% convertible notes with a conversion price of $15.45 per share. Akamai has good earnings albeit with slowing growth due to strong competition.

* Adjusted for $285.8 million income tax benefit. All figures in millions.

Fusion Outlook

AKAM has been in a uptrend since the Nov 20 2008 low of $9.25. Having traded above the 50 day MA for March through mid June, AKAM has since had two brief sorties below the 200DMA. The first drop to $15.86 in late July was due to Q2 miss and lowered guidance. Although the 50 dMA recently closed below the 200 dMA, it is turning up and the P&F remains in the uptrend which began a year ago. Technically AKAM has been performing strongly for the last two months, despite an onslaught of the negative articles from Dan Rayburn, the Akamai bear.

At Friday’s close of $20.31 AKAM is trading at a forward 2009 P/E of 12.77. That is low for a company with Akamai’s growth potential. However, despite growing eps 72% per annum and revenue 37% for the last five years analysts see competition from Limelight (LLNW) and other CDNs slowing Akamai’s growth considerably. Analysts forecast less than 12% growth in earnings per annum for the next five years, giving AKAM a PEG of 1.1.

Akamai appears finally balanced over the short term. Good earnings and guidance should see prices in the mid twenties while a miss and lowered guidance would naturally see a tumble and indicate time to look for a better investment. I continue to hold a full position of AKAM and thus will not be buying more.

Behavioral – The computer says yes. TMF CAPS players rank Akamai a 5 Star Stock.

For more details see my earlier posts on Akamai.

Related posts:

1. Akamai Technologies Inc. (AKAM) Q1 Preview
2. Akamai Technologies Inc. (AKAM) Earnings Preview
3. Akamai Accelerates Its Earnings in Q3 2009
4. Akamai Technologies falls out of favour
5. Akamai Reports First Quarter 2009 Financial Results, Announces Share Repurchase
6. Amtrust Financial Services, Inc. (AFSI) Earning Preview Q1 2009