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Akamai Revenue Guidance Light Amid Concern Over Apple, Facebook

Akamai Technologies ( AKAM ) late Tuesday reported Q1 earnings and revenue that topped expectations, though its current-quarter revenue guidance slightly missed Wall Street expectations. Still, Akamai stock was up 7.5% in early trading in the stock market today , touching a four-month high of 57.50. Cambridge, Mass.-based Akamai is the biggest provider of content delivery network (CDN) services. Worries that customers such as Apple ( AAPL ) and Facebook ( FB ) are shifting some of their data traffic to their own CDNs has pressured Akamai stock, and analysts have lowered Q1 estimates. Akamai said Q1 EPS ex items rose 8% to 66 cents per share, with revenue also rising 8% to $567.7 million. Analysts polled by Thomson Reuters had modeled 63 cents and $564 million. For Q2, Akamai forecasts revenue of $574 million at its midpoint of guidance and adjusted profit of 62 cents to 65 cents per share vs. consensus estimates of $578.4 million and 65 cents. “Revenue guidance is slightly under consensus, due to year-over-year decline in revenue from two major media delivery customers (Apple and Facebook) that are taking more of their volume in-house,” Michael Olson, a Piper Jaffray analyst, said in a research report. “Importantly, the impact from these customers is becoming less material as they go from 11% of revenue in 2015 to around 6% in 2016.” Colby Synesael, an analyst at Cowen & Co., says Akamai’s guidance might be too conservative. “While we appreciate management’s decision to err on the side of being overly cautious after its surprising revelation regarding these two customers on its Q3 (2015) call, it highlights management’s lack of visibility with its own top customers,” he said in a report. Akamai competes with Level 3 Communications ( LVLT ) and Limelight Networks ( LLNW ), as well as startups Fastly and CloudFlare. Verizon Communications ( VZ ), Amazon.com ‘s ( AMZN ) Amazon Web Services, IBM ( IBM ) and Comcast ( CMCSA ) are also emerging as new rivals in some parts of the CDN market. “Akamai has been very clear that the first half of 2016 would be marked by slower growth in the media segment, but then it expects (Internet TV) video to begin to accelerate growth. Similar to other large, secular growth opportunities, it is often difficult to project the exact timing of the opportunity, but we believe growth from (Internet TV) will begin to manifest in second half 2016,” said Michael Bowen, an analyst at Pacific Crest Securities, in a report.

Akamai Q1: Media Revenue Seen Down But Security Services Up

Akamai Technologies ‘ ( AKAM ) revenue from media and entertainment customers such as Apple ( AAPL ) and Facebook ( FB ) is expected to fall in Q1, but analysts expect a boost from the Internet infrastructure company’s move into security services. Cambridge, Mass.-based Akamai, the biggest provider of content delivery network services, is set to report Q1 earnings after the close Tuesday. Akamai’s global CDN helps Apple, Facebook and other speed up video streaming, e-commerce transactions and business software downloads over the Internet. Apple, though, is among the big tech companies that has been developing its own CDN, while also using other CDN providers. Mark Mahaney, analyst at RBC Capital , is modelling a 3.5% year-over-year decline in sales for Akamai’s media and entertainment business but a 15% rise in cloud-security revenue. “We are looking for $207 million, or a 3.5% (media segment) decline, as two of the company’s largest media customers (likely Apple, Facebook) transition off the Akamai platform. The concern over whether additional top media customers will migrate off Akamai remains the most material overhang on the stock,” Mahaney said in a research report. “Security is becoming an increasingly meaningful part of the financial story, accounting for 12% of revenue in 2015. We are modeling 45% year-over-year growth to $79.8 million.” Akamai competes with Level 3 Communications ( LVLT ), and Limelight Networks ( LLNW ) as well as startups Fastly and CloudFlare. Verizon Communications ( VZ ) ( IBD ), Amazon.com ‘s ( AMZN ) Amazon Web Services, IBM ( IBM ) and Comcast ( CMCSA ) also are emerging as new rivals in some parts of the CDN market. Analysts polled by Thomson Reuters estimate Q1 EPS of $564 million, up 7% from the year-earlier period. Analysts estimate earnings per share minus items of 63 cents, up 3%. Akamai stock is about even in 2016 but down 32% over the past 12 months. Akamai has a low IBD Composite Rating of 50 out of a possible 99. Akamai stock was down a fraction, near 51, in early trading in the stock market today .

IBM Showcases Video Streaming At NAB Show; More Competition For Akamai?

IBM ( IBM ) pushed further into online and cloud-based video services, unveiling streaming products at the National Association of Broadcasters show in Las Vegas on Monday. IBM downplayed possible competition with Akamai Technologies ( AKAM ), the leader in content delivery network services. IBM, though, seems to be moving onto Akamai’s turf, says Oppenheimer analyst Tim Horan. At the NAB show, IBM took the wraps off Aspera FASPStream , software that IBM says streams live broadcast video over “commodity Internet networks.” IBM also unveiled an enterprise CDN product that lets companies broadcast live streaming video within their corporate firewalls. IBM’s initial clients for the video streaming products include AOL, part of Verizon Communications ( VZ ); the Canadian Broadcasting Co., Comic-Con and Mazda. “We’re not in the CDN business like Akamai,” Braxton Jarratt, who leads IBM’s cloud video unit, told TechCrunch . He added, though, that IBM has substantial cloud and software resources. IBM has made a few video streaming-related acquisitions. At NAB, Akamai announced the opening of a broadcast operations control center to support customers’ over-the-top (OTT) video streaming. Cable TV firm Comcast ( CMCSA ) also looms as a new rival of Cambridge, Mass.-based Akamai. Comcast launched a commercial CDN offering in May, 2015. Akamai’s global CDN speeds up video streaming, e-commerce transactions and business software downloads over the Internet. Akamai competes with Level 3 Communications ( LVLT ) and Limelight Networks ( LLNW ) as well as startups Fastly and CloudFlare.