Akamai shares fall on growth warning
Stock off 19% as rivals force price competition
Shares of Cambridge-based Akamai Technologies Inc. took a beating yesterday, after an earnings report that touted record revenues and profits for the first six months of 2011, but warned of sluggish revenue growth ahead for the Internet data delivery company.
Akamai runs a massive worldwide content delivery network used by major companies to efficiently deliver Internet data, including text, software, audio, and video. The company’s shares lost more than 19 percent of their value, or $5.64, to close at $23.79 on the Nasdaq stock exchange.
On Wednesday, Akamai reported second quarter revenue of $277 million, up 13 percent from the same period in 2010, and net income of $47.9 million, up 26 percent from last year. Chief executive Paul Sagan said that “while our results were in line with our guidance, they did not achieve the highest expectations that we have for the business.’’
Due to continued strong demand for Internet services, Akamai had projected 15 percent revenue growth in 2011. But surging competition from rival content delivery companies such as Level 3 Communications and Amazon.com has forced Akamai to lower its prices.
Akamai’s chief financial officer J.D. Sherman said his company now expects between 10 and 13 percent revenue growth this year.
“They enjoyed about a three-year period where they could charge what they wanted because nobody could really compete with them,’’ said Dan Rayburn, a digital media analyst at Frost & Sullivan in New York, “but they’re no longer the only game in town.’’
Melanie Posey, an analyst for IDC Corp. in New York, said that prices in Akamai’s original content delivery business have fallen sharply. These days, she said, the company charges just one or two cents to deliver a gigabyte of data. “A couple of years ago that price was more 20, 25 cents,’’ she said.
Posey said that Akamai is positioning itself for the future by investing heavily in advertising, cloud computing services, and Internet video delivery. These higher-end services now make up about 60 percent of the company’s revenues, but aren’t yet growing fast enough to make up for the falling price of basic content delivery service.
Posey said it will be some time before Akamai’s growth picks up. It “would be more of a buy-and-hold kind of thing,’’ she said.
Hiawatha Bray can be reached at firstname.lastname@example.org.