July 30th, 2008
Akamai: Broadband consumption clouds outlook
Akamai said Wednesday that broadband speeds may have as big of an impact on its financial results as the slowing economy.
Akamai, which makes software that caches content to speed up Internet traffic, reported net income of $34.3 million, or 19 cents a share. Excluding items the company reported earnings of $76.5 million, or 41 cents a share, to match Wall Street estimates. Revenue for the quarter was $194 million, up 27 percent a year ago.
But the big news was Akamai’s outlook (statement), which indicated that the company would land on the low end of its earnings and revenue target. The company said it expects 2008 revenue to be at the low end of its $785 million to $800 million range. Earnings will also fall at the low end or below the previous 2008 outlook calling for earnings of $1.63 a share to $1.69 a share. The third quarter will also be seasonally slow with revenue between $193 million or $198 million with earnings between 39 cents a share and 40 cents a share.
CEO Paul Sagan cited a “challenging environment” in the company’s statement, but there are also worries about the amount of content that U.S. users can realistically consume. Sagan noted that Internet traffic wasn’t slowing, but growth rates are being affected by broadband speeds. Sagan’s message: Unless broadband speeds perk up the ability of consumers to watch content (the type that Akamai delivers) will see slower growth. Sagan would like to see the day where you can get high-def video over IP.
Sagan said:
“We shouldn’t mix up economic factors and traffic. The consumption issue is how much can people consume. (Consumpution) can’t grow if broadband doesn’t increase.”
Needless to say those comments didn’t go over to well as Akamai shares fell about 17 percent afterhours. Indeed, Akamai’s comments about U.S. broadband speeds are more worrisome than the economy. It’s safe to say that the economy will come back faster than broadband speeds jump in the U.S.
Sagan added that Web content consumption isn’t falling off of a cliff, but there are slower broadband speeds in the U.S. that will hamper growth rates. Internationally, the broadband speed issue isn’t as much of a factor.
That thread was notable since Sagan still has some economic issues to confront. Akamai’s tools speed up Web advertising and some verticals–automotive and media–are slowing spending.
“The economic issue is in verticals we sell into where there is a strong slowdown. There’s not one single event there, but we’re conservative about the second half,” said Sagan.
Larry Dignan is Editor in Chief of ZDNet and Editorial Director of ZDNet sister site TechRepublic. See his full profile and disclosure of his industry affiliations.
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