Fool AKAM post

http://boards.fool.com/Message.asp?mid=23716775

Hi Tim

Firstly, thanks for the fantastic analysis and continued thought on Akami.

After your initial recommendation, I quickly jumped on board for the following reasons.

• High fixed costs business with expanding sales, resulting in expanding profitability, i.e. more of there sales fall straight to the bottom line.
• Although there are some competitive risks, I saw and still see 2006 as the first breakout year for web downloads, on the road to downloads that will dwarf those of today. There needs to be some Moore like formula for web downloads, maybe Akami’s formula.

So I saw a company in the sweet spot, a spot that should get sweeter over the next year or two. With this P/E should expand as more coverage and enthusiasm builds, so expanding earnings with rising P/E multiple can only mean big price increases.

So where are we now,

EPS TTM .52

Price 02-16-06 26.67

P/E TTM 51

EPS high est 06 0.71 ( a 36% increase)

P/E forward 37.6

EPS high est 07 0.94 ( year on year 32% increase)

P/E forward 2 28.37

Looking at this makes me think a few things:

• Are analyst’s estimates too low? With AKAM expanding sales and margin could they blow these numbers away? Maybe.
• If they meet estimates then in two years at today’s price they would still have a P/E of 28. As they had been growing at 30%+ for a number of years they may be rewarded with a higher P/E, lets say 40, putting price around $37.
• What happens if they have one missed estimate, Google starts to move in, Apple gives them the flick or general market conditions deteriorate? P/E will compress as investors enthusiasm wanes, lets say it comes down to TTM P/E of 30. That would take the price back to $16, using forward eps of .71 price would be $21.

Other thought:

• I agree with Tim Hart, Google will start finding things harder. They don’t have trust. Heck I don’t trust them, even though I use their sites everyday. So why don’t I trust them? Probably, as in desperation their competitors have started spreading rumours and innuendoes about their motives. I have no real reason to distrust them, but just like Microsoft I do. Is big bad?

Disclosure: I own AKAM and recently traded Feb 25 Calls for a profit of .50. I am now looking at August Calls.