Analyst Conference Summary


conference date: February 3, 2010 @ 1:30 PM Pacific Time
for quarter ending: December 31, 2009 (fourth quarter)

Forward-looking statements

Overview: Revenue growth returns to double-digits.

Basic data (GAAP) :

Revenue was $238.3 million, up 15% sequentially from $206.5 million, and up 12% from $212.6 million in the year-earlier quarter.

Net income was $40.1 million, up 23% sequentially from $32.7 million, but down 1% from $40.5 million year-earlier.

EPS (earnings per share) were $0.21, up 17% sequentially from $0.18, but down 5% from $0.22 year-earlier.


No full year guidance, but cautiously optimistic about continuing double digit revenue growth.

March quarter is typically seasonally down, and expecting a foreign exchange impact. So Q1 revenue $224 to $233 million. Gross margins flat. EPS normalized $0.30 to $0.32. Capital expenditures of $35 to $40 million.

Conference Highlights:

Quarterly results set records. Believes well positioned to capture traffic growth on the internet. Business mix shifting to value-added solutions.

23% sequential growth in e-commerce vertical. 10% sequential growth in media and entertainment. 18% sequential high-tech sector growth. 1% sequential increase in public sector, but up 24% y/y.

In 2009 generated $424 million cash from operations.

Non-GAAP, "normalized" net income was $85.4 million or $0.46 per share, up 21% sequentially, and up 5% from $0.44 y/y. EBITDA was $111.6 million, up sequentially from $95.9 million, and a record. Excludes $18.6 stock-based compensation expense and non-cash tax charges.

Cash and securities balance ended at $1.05 billion. $124.9 million cash flow from operations. Stock repurchases cost $15.1 million. Convertible note liability $200 million. $32.6 million in amortization charges in quarter. $29.2 million in capital expenditures.

3122 customers under recurring contracts, up 9% y/y. Churn returned to 4% levels. $25,600 average revenue per customer. Customer metrics are becoming less relevant, so will stop reporting on them to focus on metrics for verticals.

Revenues through resellers were 19% of total; international revenues 28% of total, growing 26% y/y.

Cost of revenues was $67.6 million. R&D expense $12.5 million. Sales and marketing expense $51.6 million. General and administrative expense $40.2 million. Amortization $4.1 million. Leaving operating income of $62.2 million. Other income $2.3 million. Income taxes $24.5 million.

In 2011 expect to become a full tax payer, whereas until now cash taxes have been far lower than GAAP taxes due to use of NOLs.

Believes video distribution, online advertising, and cloud computing will lead to greatly expanded internet traffic, which Akamai will serve.


Value added service revenue? We hit over 50% in Q3, and the share grew in Q4. Advertising decisions business is seasonally up in Q4. Dynamic site solutions and application performance solutions are less seasonal, but still getting good traction.

Bandwidth consumption volume? Less than half of business is now volume driven, but the volume has been trending up. It is difficult to tell how much is general volume, and how much is gaining market share. But for online media distribution, they are not buying bandwidth from us, but a complete solution for quality, fast video delivery.

Aggressive pricing strategy? Our goal is to drive costs out of units every year and share the savings with our customers. It helps us against competitors, it helps improve margins, and revenues.

Vertical expectations for 2010? Commerce grew 20% in a tough economy. Media declined in mid 2009, has now returned to growth, so we are optimistic for 2010. Public sector tends to be lumpier, hard to predict.

Advertising decisions product? We are very pleased with it so far. It was a $20 million run-rate business when we acquired it in October 2008.

Value added solutions overseas? We don't have advertising decisions available outside U.S. yet. In general, penetration not as good internationally. Typically leading services are tried first in the U.S., then spread to Europe, then Asia.

Capital expenditure outlook? Long term model is 13% to 16% of revenues. In 2009 we spent less.

Google including speed in search-rank algorithm? We think it is great that Google is recognizing that one of the factors for web sites is download speed. Customers are asking about this.

Q4 expense increases? Mostly wrap-up expenses like bonuses. We did add about 50 people in the quarter, focused on sales and marketing.

Most cloud computing partners are at the first layer, software as a service.

IPv6 impact? This is not a near-term opportunity, but an emerging standard that would allow move devices to connect to internet with their own IP addresses.

HD content, why would providers not resist higher deliver prices? Because viewers remain engaged longer on HD, so there is more advertising potential. But we do need to drive down the delivery cost of HD video.

Acerno contribution? Acerno is basically all organic, maybe a couple of million of tailwind there.

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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 2010 William P. Meyers