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Akamai Stock Jumps On Q1 Beat, Despite Apple, Facebook Trend

Akamai Technologies ( AKAM ) stock jumped Wednesday after the CDN services provider late Tuesday reported Q1 earnings and revenue that topped analysts’ lowered expectations and gave in-line current-quarter profit guidance. Shares of Cambridge-based Akamai were up 23% in midday trading in the stock market today , near 49. Akamai is the biggest provider of content-delivery network (CDN) services to media and entertainment companies. Akamai said it earned 72 cents per share in Q4, up 3% from the year-earlier period, with revenue rising 8% to $579.2 million. Analysts had modeled EPS of 62 cents and revenue of $569 million. The beat included a 6-cent tax benefit. Akamai bought back $100 million in its own stock, lowering share count and boosting EPS. Even with Wednesday’s gain, Akamai stock is down 7% in 2016. The stock had plunged 47% through Tuesday’s market close since Oct. 27, when the company gave disappointing December-quarter guidance. For the current quarter, Akamai forecasts revenue of $562 million at the midpoint of its range, with adjusted EPS of 61 cents to 64 cents, vs. consensus estimates of $568 million and 63 cents. Full-year 2015 revenue rose 12% to $2.2 billion. On the company’s earnings conference call, management backed off of its 2020 revenue goal of $5 billion, said Colby Synesael, an analyst at Cowen & Co., in a research note. Akamai’s technology speeds up video streaming to mobile devices, e-commerce transactions and business software downloads. Akamai has expanded into higher-margin cloud-infrastructure services and security, aiming to offset price cuts in the CDN business that average 15% to 20% a year. “The security segment, now at a $300 million (annual revenue) run rate, provided the (Q4) upside,” said UBS analyst Steven Milunovich in a report. Akamai’s stock has been pressured as some big customers shift to their own internal CDNs. Apple ( AAPL ), believed to be Akamai’s biggest customer, and Facebook ( FB ) have been moving data traffic to their own CDNs. Akamai has renegotiated contracts and lowered prices in some cases, says Tim Horan, an analyst at Oppenheimer. “The top two customers (likely Apple/Facebook) represented an average of 13% of revenue and likely closer to 11% in Q4, but that should decrease to 6% by mid-2016,” wrote Horan in a report. “The next two (likely Microsoft ( MSFT )/Google) likely represent 5% and have likely re-priced. This should result in less revenue volatility in the second half of 2016, with upside if overall traffic volumes pick up.” Google is the main business of Alphabet ( GOOGL ). He says Akamai could gain from video streaming tied to the Olympics this summer, the presidential election and National Football League games. Aside from longtime rivals Level 3 Communications ( LVLT ) and Limelight Networks ( LLNW ), Akamai is facing increased competition from Amazon Web Services, part of Amazon.com ( AMZN ), as well as Verizon Communications ( VZ ).

Steady Cisco May Show EPS Gain, Better Sales Pace Without Set-Tops

Steady Cisco Systems ( CSCO ) may lack the eye-catching appeal of Juniper Networks ( JNPR ) and its fast 54%-58% non-GAAP earnings growth of the last two quarters. But Steady Eddy also lacks the anxiety of Fast Eddy’s volatile sales that shrank from a year earlier in four of the last six quarters. Cisco has had only two declining quarters of earnings — not one non-GAAP loss — and two shrinking sales quarters in the last four years, the most recent contraction more than two years ago, although growth has decelerated about as often as accelerated. Unlike its rival Juniper, Cisco hasn’t logged double-digit sales growth in 16 quarters. Cisco is expected to report earnings up 2% to 54 cents per share minus items, on revenue down 1.5% to $11.75 billion, for its fiscal second quarter ended in January, according to analysts polled by Thomson Reuters. A year before, the legacy maker of switches, routers and networking equipment for telecoms, Internet service providers and big computing enterprises had reported Q2 non-GAAP EPS up 13% to 53 cents, on sales up 7% to $11.94 billion. The decline in part is due to the sale of Cisco’s television set-top-box business to Technicolor, a deal that closed in November for $600 million. Excluding the set-top-box business, Cisco guided Q2 adjusted EPS to 53-55 cents, on revenue to a range of 0%-2% growth. Cisco stock is performing a bit better than Juniper lately, though it lost 1.2% to 22.65 in the stock market today , 25% off an eight-year high 30.31 set in March. Juniper flattened Tuesday to a 0.1% gain at 21.99, 32% off a four-year high set Nov. 4 at 32.39. Cisco said it was selling the niche business to Technicolor to focus on faster growth areas. Set-top-box sales reportedly had slipped from $2.6 billion to $1.8 billion from fiscal 2013 to 2015. Cisco acquired the set-top-box operation as part of its $6.9 billion purchase of Scientific-Atlanta in 2005. Bernstein analyst Pierre Ferragu, in a research note issued Tuesday, estimated Q2 revenue would fall 1% to $11.8 billion if including set-top-box revenue of $361 million a year earlier, or rise 2% to $11.80 billion by excluding set-top-box sales a year earlier, at the high end of Cisco’s guidance. Wall Street analysts “might not have uniformly excluded (set-top-box performance) from their forecast yet,” Ferragu warned. “For the rest of the year, we expect top line growth to be supported by 1) continued strength in enterprise and commercial; 2) continued momentum in switching, (and) 3) product cycles in routing and collaboration.” He expects 4% revenue growth for the year, in line with consensus. In the last quarter, Cisco was scheduled to close the purchases of Portcullis, a digital security operation; Lancope, a security analytics firm; ParStream, another analytics specialist; and 1 Mainstream, an on-demand streaming-content company. Analysts expect to hear an update from Cisco on its “strategic partnership” with Ericsson ( ERIC ), announced in early November as the biggest deals the two had ever entered into, and expected to generate $1 billion annually in additional revenue for each by 2018. Ericsson closed up 0.6% Tuesday to 8.56. Image provided by Shutterstock .

3 Keys To Tesla Earnings As $35K Model 3 A Go: Low Ride, Ramp, View

Trading at a two-year low since last week, reeling from analyst target cuts and facing its Q4 earnings report after the close Wednesday, Tesla Motors ( TSLA ) stock rebounded more than 6% early Tuesday after guttering down 9% Monday and more than 7% Friday. The surge pared to a 0.18% gain for the trading day, and Tesla stock slipped about 2% after-hours. What’s ahead in Tesla’s fourth-quarter report? Here’s what to watch. 1. A Lowered Ride Several analysts have slashed price and other targets on Tesla ahead of the Q4 release, spurring some of the recent share declines. Tesla stock has fallen 38% this year, in a market now in correction on concerns about the world economy and falling oil prices. The S&P 500 has fallen 9%, Ford ( F ) 19%, General Motors ( GM ) 17%, Toyota ( TM ) 13% and the biggest stock of all, Apple ( AAPL ), 10%. Tesla holds a low IBD Composite Rating of 16 out of a possible 99, factoring in several metrics such as earnings growth and stock-price gains. With Tesla stock closing at 148.25 in the stock market today , the median long-term price target of analysts polled by Thomson Reuters stands at 282 and the average view slightly better than hold. But analyst opinions on Tesla vary drastically. Barclays cut its target to 165 from 180 Tuesday, with an underweight rating. Stifel analyst James Albertine, a long-term bull who rates Tesla stock a buy, said in a research report Sunday that “we see few catalysts to turn short-term bears bullish,” as Tesla concentrates on building its electric-car business (which requires “tremendous investment”) for the longer haul. Of 20 analysts polled, eight rate Tesla a hold, five underperform, four buy and three strong buy. That’s slightly lower than three months ago. How much do views on Tesla stock vary? StreetInsider reported on Tuesday that a Weiss, Harrington and Associates publication, Unit Economics, on Sunday re-initiated coverage of Tesla with just a 12 price target (and scathing commentary). That independent-research outfit, focused on energy, does not appear in the list of broker analysts tracked by Thomson Reuters. 2. Model X Ramp, Model 3 Plans One key to how investors view Tesla’s Q4 report and guidance is how production of the newly introduced Model X crossover SUV, with its falcon-wing doors, ramps up. Sales are still seen as very light vs. the Model S sedan. Both sell for north of $70,000. “Given management’s long-term focus, we suspect quality trumps speed with the new Model X,” Albertine wrote in his weekend research note. Tesla, with only two vehicles and a third on the way, “cannot afford major defects, recalls or further interruptions (bringing previously delivered vehicles in for service) in the same way that most OEMs (with far too many products, in our view) can announce recalls without suffering lost share.” Albertine expects that updated guidance may be lower than the 80,000-85,000 vehicles that Tesla has previously anticipated for 2016, “which could drive further sell-off in shares.” He also expects that management will deflect on cash-flow questions given the needs for ramping up the battery Gigafactory and the Model 3 sedan. “Will this matter once the Gigafactory is up and running and the Model 3 demonstrates it can be the (BMW) 3-Series killer bulls expect? Probably not,” he writes. “But it likely does not help valuation discussions near term.” @elonmusk $35k price, unveil in March, preorders start then. — Elon Musk (@elonmusk) September 2, 2015 After its luxury Model S and Model X, the design for Tesla’s smaller and more affordable — $35,000 — Model 3 is set for March, with pre-ordering beginning then, Tesla CEO Elon Musk said in September. A Bloomberg story Tuesday quoted Tesla spokeswoman Khobi Brooklyn as saying the company still plans a $35,000 price , before government green incentives. Those incentives could trim a buyer’s cost to about $25,000 in some places. Though details on how Tesla as a startup automaker will be able to achieve mass production with that price point — and eventually profit from it — remains to be seen, lowering the cost of batteries, via its Gigafactory, is one lever for that. 3. The View Thomson Reuters’ analyst poll calls for Tesla’s Q4 report to produce 10 cents earnings per share minus items, swinging from a 13-cent loss in the year-earlier quarter. Analysts see a $1.26 loss for 2015, then project EPS of $1.66 for 2016. Fourth-quarter 2015 sales are anticipated at $1.79 billion, up 64%, with 2015 coming in at $5.36 billion and 2016 at $8.58 billion. Over the last several days, average near-term projections have bounced back up — for instance, in Q4 EPS to a dime, after dipping as low as a view of 8 cents. But the longer-term analyst outlook has edged down. Tesla has interesting times ahead this year: That planned Model 3 unveil, for one thing. For another, scoping out some kind of partnership in China so it can set up a car manufacturing plant there. Last Tuesday, Tesla’s China blog announced a Model X debut for the Chinese market, and invited orders. In late January, Tesla CEO Elon Musk exercised options to buy and hold about $100 million more Tesla stock than he already had, while paying a hefty tax bill (and in effect diluting the stock outstanding). Analysts question how soon the Model 3 can roll off the assembly line. And there’s potential competition ahead from other automakers — such as GM’s long-range Chevrolet Bolt — and maybe at some point an Apple car. “We can’t overstate the importance of the March 29 Model 3 unveiling,” Pacific Crest Securities analyst Brad Erickson wrote in a Feb. 1 research note. RELATED: Self-Driving Cars On Ramp As Feds Tax Oil In New Obama Budget . CEO Elon Musk Adds Huge Tesla Stock Stake Ahead Of Earnings . With Tesla Earnings Ahead, Truck Could Follow Model 3 .