Akamai Miss: Blame Broadband or Competition?

Shares of Akamai (AKAM) plunged 23.5 percent Thursday as some analysts questioned the rationale for its earnings miss.

Shares of Akamai (AKAM) plunged 23.5 percent Thursday after the company reported subpar earnings and lowered its full-year sales and profit guidance. That prompted a decline of $7.91 to $23.34 a share. Akamai shares have been beaten up before, but today's discussion quickly focused on the company's rationale for its earnings miss. A roundup:

  • Dan Frommer from Silicon Alley Insider summarizes the company's explanation: that customer traffic growth is slowing. "What will pick up the pace for Akamai? When Web video quality increases - so Akamai can push streams and video files that are relatively larger."
  • That account didn't fly with Ryan Lawler at Contentinople and the sources he polled: "But some analysts and competitors say they're not seeing the same weakness in media and entertainment. That's causing some to speculate that Akamai is just being coy about competitive pressures that it's facing." A relevant quote from Wedbush Morgan Securities analyst Kerry Rice: "I've talked to a lot of the CDNs, and not one of them said, 'We're seeing traffic volumes slow.'"
  • Dan Rayburn at the Business of Video agrees that Akamai's explanation isn't adding up. "I listen to all of the CDNs quarterly calls and have to admit that last night, Akamai delivered a very confusing message. On one hand they said traffic was still growing, but not as fast as before and that pricing for CDN remained stable. But on the other hand, blamed the economy and lack of broadband speeds for the reason content owners are not spending more money to deliver more content, which created less growth. That does not make sense."

  • Robert Powell at Telecom Ramblings picks up on Dan's point: "You can't have good pricing and traffic growth yet claim a challenging overall economic environment - you can only claim a challenging sales environment," Powell writes, adding that Akamai "was able to grow like a rocket because it really had no viable competition for a long time, and that has changed with Limelight, Level 3, AT&T, and a plethora of smaller CDNs out there fighting for each deal. ... So Akamai's growth rate must moderate, at least relative to what it would have been, and we enter a new, more interesting phase in the CDN space."
  • Did Akamai mismanage the analyst community's expectations? Fil Zucchi at Minyanville thinks so. "I didn't expect the pullback in guidance and in hindsight I can safely suggest that raising guidance last quarter without having locked in the bag was a dumb-arse move; had it not done that, which got the company very little in terms of stock gains, today we'd be yawning at another boring quarter and the stock would likely be flat."
  • Can Akamai Overcome This? Motley Fool steps back from the recent carnage to look at Akamai as a long-term investment.