Akamai Stumbles as Silicon Valley Giants Wean Themselves Off Network
July 26 2016 - 7:10PM
Dow Jones News
Akamai Technologies Inc. warned its core profit could decline
this quarter as its biggest Silicon Valley customers invest more in
their own network infrastructure.
Shares dropped 11% to $51.70 in after-hours trading as the
company warned its margins could also come under pressure as prices
for some customers decline.
The Cambridge, Mass., company blamed a revenue pullback from its
biggest technology customers like Apple Inc. and Facebook Inc. as
they channel more data through their own systems rather than
outsourcing the job.
Akamai's six biggest technology customers, which also include
Amazon.com Inc., Alphabet Inc.'s Google, Microsoft Corp. and
Netflix Inc., accounted for about 11% of its revenue in the second
quarter, down from 18% for the same period last year.
"The worst of that is by and large behind us," Chief Executive
Tom Leighton said in an interview. Even with the pullback, Mr.
Leighton said, the company expects overall sales to pick up in
2017. "It's important for you to know that the core of our business
is large and growing," he said on a conference call.
Most of Akamai's business comes from its network of more than
200,000 servers placed in data centers around the world. E-commerce
companies, streaming video services and other corporate clients use
the network to juice download speeds and keep their websites
running smoothly.
Expenses swelled last year after the company, expecting a wave
of new video traffic from its biggest media customers, quickened
its network expansion. Instead, revenue from top clients Apple and
Facebook declined as the two technology companies spent more on
their own network capacity, according to people familiar with the
matter.
In the second quarter, total costs rose 6.3% to $462 million.
Akamai forecast that its third-quarter per-share earnings,
excluding some one-time costs, would dip between 59 cents and 62
cents. Analysts polled by Thomson Reuters predicted a 66-cent
per-share profit the quarter ending Sept. 30.
Akamai is still counting on traditional media companies to shore
up its video business. Events like this year's Euro Cup tournament
and the coming Olympic Games in Rio de Janeiro draw millions of
online viewers who use massive amounts of bandwidth. The company's
fledgling network security business has also grown quickly.
The company earned $73.6 million in the latest quarter compared
with a profit of $67.2 million a year earlier. Revenue rose 5.8% to
$572.1 million, below the midpoint of the company's previous sales
prediction of $566 million to $582 million.
Write to Drew FitzGerald at andrew.fitzgerald@wsj.com and Josh
Beckerman at josh.beckerman@wsj.com
(END) Dow Jones Newswires
July 26, 2016 18:55 ET (22:55 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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