UPDATE 3-Akamai outlook beats estimates, eases pricing fears

Wed Apr 28, 2010 6:47pm EDT

* Akamai Q1 revenue $240 mln vs Street view $230 mln

* Q1 EPS excl items $0.35 vs year-ago $0.31

* Q2 sales, EPS outlook also exceed expectations

* Shares jump nearly 9 pct after-hours

* Galleon probe ends, employee in question was not exec (Updates with CEO and analyst's comments, latest share price)

By Ritsuko Ando

NEW YORK, April 28 (Reuters) - Akamai Technologies Inc (AKAM.O) posted quarterly results and an outlook that beat expectations as more businesses sought its help in delivering online entertainment, soothing concerns about growing price competition.

Akamai, which supports online media companies by navigating less-congested routes over the Web and whose customers include Apple Inc (AAPL.O) and News Corp's (NWSA.O) MySpace, said its first-quarter sales rose 14 percent from a year earlier to $240 million.

Analysts had expected $230 million, according to Thomson Reuters I/B/E/S. Akamai shares jumped nearly 9 percent in extended trade on Wednesday.

The company's outlook for second-quarter revenue of $236 million to $246 million also exceeded Wall Street's forecast of $232 million.

Chief Executive Paul Sagan cited high-definition (HD) video services as a key growth driver. Akamai has helped stream live events like the Vancouver Olympics, U.S. March Madness basketball and Masters golf tournaments.

"HD was a piece of the pleasant surprise and will be a big driver for us over the years," he said.

"Our live events distributed over the Internet in HD, events such as the Masters and March Madness, these are demonstrating the ability to increasingly reach audiences in new and innovative ways."

Net profit rose to $40.9 million from $37.1 million a year earlier. Earnings excluding special items was 35 cents a share, exceeding the average Street forecast of 31 cents.

For the current quarter, it forecast earnings excluding items of 32 cents to 34 cents a share, above the Street's 31 cents.

Analysts said the results helped ease concerns about increasing competition from traditional rivals like Limelight Network Inc (LLNW.O) and Level 3 Communications Inc LVLT.O as well as from new market entrants like AT&T Inc (T.N). Akamai has said it would cut prices to win more business.

"They're obviously seeing good volume there, and it's offsetting the price cutting," said Donna Jaegers, a senior analyst at D.A. Davidson & Co.

"I'd been recommending Limelight and been neutral on Akamai because I thought Limelight might steal their momentum ... but it's certainly not having an impact on Akamai," she said.

Akamai shares rose nearly 9 percent to $36.10 after-hours, after closing down 1.5 percent at $33.18 on Nasdaq. Shares in Limelight rose slightly, while those of Level 3 were unchanged.

Sagan said pricing pressure was nothing new, and that the company was managing costs to keep up its margins and bottom line. Its adjusted margin for the quarter was 49 percent, up 1 point from a year earlier.

"Pricing pressure has always been there. So it remains a constant," he told Reuters in an interview.

He also told Reuters the company had concluded an internal investigation on the Galleon insider trading scandal. One of its employees was linked to the case, and Sagan said that person was no longer with the company.

"The employee in question was not an executive," he said. He declined to name the individual. (Reporting by Ritsuko Ando; Editing by Richard Chang)