Akamai (AKAM) is expected to report Q3 earnings after the market close on Wednesday, October 24, with a conference call scheduled for 4:30 pm ET. The consensus estimate is 41c for EPS and $338.20M for revenue, according to First Call. Guidance provided by management on its last earnings call is for Q3 EPS of 40c-42c, revenue of $332-$342M. The company expects Q3 to gross margins to remain relatively stable -- with cash gross margins in the range of 79%-80% and GAAP gross margins, which include equity compensation, in the range of 67%-68%. Citigroup is looking for $339M in revenue, $147M in EBITDA, and 42c in normalized EPS, which is relatively in-line with the Street and within the guidance range. Based on intra-quarter channel checks and Citigroup's model sensitivity work, the firm views Street Q3 estimates as reasonable, with greater likelihood of upside than downside variance. The firm continues to believe that competitive pricing pressure in Akamai's Media & Entertainment vertical, along with increased competition in the Cloud Services space, could create potential risk to margin expansion. Citigroup maintains a Neutral rating on Akamai with a $33 target. The firm continues to view Akamai as very solid franchise facing significant secular growth opportunities. However, Citigroup remains concerned about an increasingly competitive environment, especially where larger, well-funded companies, like Amazon (AMZN) are gaining traction in the CDN market. With CEO Paul Sagan stepping down and no immediate successor in place, and customers like Netflix (NFLX) starting to in-house their CDN needs, Citigroup remains cautious about Akamai and would prefer to sit on the sidelines at these valuation levels. The company will hold an Investor Summit in Boston on Dec. 12.
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