Akamai Tumbles as Outlook Falls Short

Updated from 5:46 p.m. ET to include detail on conference call, latest share price..

NEW YORK ( TheStreet) -- Shares of Akamai Technologies ( AKAM) were weak in late trades on Wednesday after the Cambridge, Mass.-based company edged quarterly profit expectations by a penny but disappointed with its forecast.

The company, which bills itself as a provider of "cloud optimization" services, reported normalized earnings of $72.2 million, or 38 cents a share, for the three months ended in March. Revenue rose 15% year-over-year to $276 million in the March quarter. No outlook was provided in the company's press release.

The average estimate of analysts polled by Thomson Reuters was for a profit of 37 cents a share in the March period on revenue of $272 million.

On its conference call, Akamai said it expects normalized earnings of 34 to 37 cents a share with revenue ranging from $270 million to $280 million for the current quarter ending in June. Wall Street's consensus estimate is for a profit of 38 cents a share in the June quarter on revenue of $280.3 million.

Akamai's core products include software to accelerate the delivery of Web applications and improve network security and traffic management. The company said Wednesday its "value-added" offerings, such as e-commerce and advertising applications, are doing particularly well.

"Continued demand for our value-added solutions, now comprising almost 60 percent of our business, drove our strong results in the first quarter," said Paul Sagan, the company's CEO in a press release. "We have built a portfolio of cloud computing solutions that leverages our intelligent Internet platform and is designed to address the diverse needs of businesses on the Web."

After meandering higher immediately after the earnings report, Akamai shares turned sharply lower in after-hours trades. The drop coincided with the company's conference call, which began at 4:30 p.m. ET.

The stock was last quoted at $36.50, down 11%, on volume of more than 2.5 million, according to Nasdaq.com. Based on a regular session close at $40.98, the shares were up roughly 20% in the past year, but had pulled back 25% since hitting a 52-week high of $54.65 back on Dec. 8.

While the outlook for current quarter is below Wall Street's expectations, the after-hours situation appeared to be complicated by Akamai's policy of not providing specific guidance for the full year. The final query of the conference call illustrated this as Chad Bartley of Pacific Crest Securities asked for clarity about whether Akamai was "backing away" from expectations for 15% revenue growth in fiscal 2011

Bartley was told the company doesn't give guidance and wouldn't be commenting further, although Akamai executives did allow that it's "fair to say" the company has an objective in mind.

Wall Street was already split on Akamai ahead of the report with 14 of the 26 analysts covering the stock rating it at hold and the remainder split between buy (4) and strong buy (8). The median 12-month price target sits at $50.

At Wednesday's regular session closing price, the stock had a forward price-to-earnings ratio of 23X based on a fiscal 2012 average analysts' view for profit of $1.79 a share, making the shares look affordable compared smaller competitors like Limelight Networks ( LLNW) at 110X and Internap Network Services ( INAP) at 35X.

Aside from the results, Akamai's board also approved another $150 million repurchase authorization, a second expansion of its buyback program, to be funded by cash from operations.

The company said it repurchased roughly 1 million common shares in the March quarter, spending $42.8 million for an average price of $41.60 per share. At quarter's end, Akamai had roughly 187 million outstanding common shares.

-- Written by Michael Baron in New York.

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