UPDATE 2-Akamai revenue at risk as contract talks with big client loom

Wed Oct 23, 2013 7:40pm EDT

Related Topics

* Company expects fourth-qtr revenue of $412-$430 mln vs. est $423.8 mln

* Third-qtr adjusted earnings $0.50/shr vs est $0.46

* Revenue rises 15 pct to $396 mln vs est $387.5 mln

* Shares fall 13 pct in after-market trading (Adds details, CEO and analyst comments, company's outlook)

By Richa Naidu

Oct 23 (Reuters) - Akamai Technologies Inc, whose products help move content quickly over the Internet, forecast current-quarter revenue largely below analyst estimates, citing the uncertain outcome of contract renegotiations with its biggest media client - widely thought to be Apple Inc.

Akamai shares fell as much as 13 percent in extended trading. They initially rose as much as 11 percent after the company reported stronger-than-expected third-quarter results.

The exact timing of the price renegotiations is being worked out and is likely to take effect in either the fourth quarter or first quarter of 2014, Chief Executive Tom Leighton said in a conference call with analysts on Wednesday.

"Given the size of this customer, and the fact that their existing pricing was set a few years ago, we believe the step-down in revenue will have a notable impact in the quarter the renegotiation takes place, and will impact overall company growth rates over the next few quarters," Leighton said.

D. A. Davidson & Co analyst Donna Jaegers identified Apple as Akamai's largest media client.

Leighton said Akamai expected fourth-quarter revenue of $412 million-$430 million. Analysts on average expect revenue of $423.8 million, according to Thomson Reuters I/B/E/S.

The fourth quarter is important for Akamai because of online shopping and increased traffic on the sites of its big media customers, which include Facebook Inc.

"If the holiday season is strong and the renewal takes effect in the first quarter, we would expect to be near the higher end of the revenue range," Leighton said.

"If the holiday season is weak and the renewal takes effect in the fourth quarter, then we would expect to be towards the lower end of the guidance range," he said.

The company expects fourth-quarter adjusted earnings of 49-53 cents per share, Leighton said, compared with the average analyst forecast of 52 cents.

Akamai, which has 132,442 servers to deliver content, reported a 65 percent rise in quarterly profit as mobile activity and app downloads increased after Apple launched its iOS 7 platform.

"In our media division, we (had) a larger-than-expected software release at the end of the quarter," Leighton told Reuters.

He declined to confirm that the release was by Apple, which reported that more than 200 million iPhone and iPad users downloaded its new mobile software in September.

Akamai has benefited from increasing internet traffic in the last few quarters as more people take to social media and streaming videos online.

Downloads of mobile apps will reach 102 billion in 2013, up from 64 billion in 2012, according to research firm Gartner. (link.reuters.com/ceb93v)

Akamai's media and entertainment business accounted for about 50 percent of total revenue in the latest quarter, Leighton said.

Akamai's net income rose to $79.8 million, or 44 cents per share, in the third quarter, from $48.2 million, or 27 cents per share, a year earlier.

Excluding items, the company earned 50 cents per share.

Revenue rose 15 percent to $396 million.

Analysts had expected adjusted earnings of 46 cents per share on revenue of $387.5 million.

Akaimai's shares fell to $45.33 in extended trading, after closing at $51.87 on the Nasdaq. Nearly 2 million shares traded after the bell. (Additional reporting by Supantha Mukherjee and Chandni Doulatramani in Bangalore; Editing by Don Sebastian, Maju Samuel and Ted Kerr)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.