By David Gross
With Wall Street overreacting to every word that comes out of an Equinix executive's mouth, one of the metrics we've been watching very closely is the expectations multiple, or how much a stock rises or falls relative to the company's performance vs. expectations.
Yesterday, Akamai beat revenue estimates by 2%, with revenue coming at $254 million, and was trading up 4% after hours to over $52 a share, with its market cap now topping $9 billion. This expectations multiple of 2, while not really justified, is still nothing like the 5x-20x we've seen recently with Equinix and PLX Technologies.
Akamai is up nearly 40% of its early August low, when consensus thinking was that it had a light quarter because of growing competition from Limelight and Level 3. I made the point after its last call that the selloff was not justified, especially when its competitors either have higher bandwidth costs, or are straining to bundle CDNs with bandwidth sales. Additionally, Limelight and Level 3 are nothing compared to the Cisco/AOL and Inktomi coalitions that tried to take on the company ten years ago. Moreover, insiders bought 88,000 shares in August, a fairly uncommon occurrence with tech stocks, where there are frequent sales due to stock option awards.
With Akamai, Wall Street didn't just overreact, it failed to size up the competitive environment accurately. While I'm sure there will be another drop next time revenue misses by a fraction of a percent, or some analyst downgrades the stock based on inaccurate assumptions, I'm sure those who held on throughout the summer are glad they did now.