Internet content delivery company Akamai Technologies Inc reported second-quarter revenue and an outlook that fell short of Wall Street's expectations, citing pricing pressure, dragging its shares down 11 percent in after-hours trade.
Akamai, which helps companies deliver Internet content smoothly by navigating less congested routes over the Web, said the company was cutting prices aggressively as competition grows.
We saw stronger pricing pressure in the volume media business, Chief Executive Paul Sagan said.
New competitors, including phone companies like AT&T Inc and Level 3 Communications Inc, have entered the content delivery business, joining traditional players like Limelight Network Inc.
Akamai forecast third-quarter revenue of $195 million to $203 million, well below analysts' average expectation of $226.2 million according to Reuters Estimates.
For the second quarter, revenue rose 5 percent from a year earlier to $204.6 million, but missed both the average Wall Street forecast of $210.9 million as well as the company's own forecast range of $207 million to $213 million.
Sagan also blamed cancellations by small businesses, as well as a major restructuring of one unnamed client, for the lower revenue. It was hard to say when business conditions would recover, he said.
I think we still remain cautious. I don't think anyone can declare the recession over, he told Reuters in a phone interview.
Akamai shares fell $2.25 to $18.15 in extended trade after closing down 5 cents at $20.40.
Akamai said its pricing would remain aggressive in the second half of the year. Price cuts would affect revenue but pay off in the long run as it wins contracts in advanced areas like high-definition video delivery, it said.
We believe we can drive profitable deals and secure growth with existing clients and also win business from accounts where we previously only had a small share of the business, said Chief Financial Officer J.D. Sherman.
Maxim Group analyst Mark Harding said the pricing pressure was worrying, but he believed Akamai's strategy to cut prices may pay off long term as it gains more business among media and entertainment clients.
The pricing pressure is disappointing, but we believe Akamai has a competitive advantage with a massive distributed network, he said.
Apple Inc and News Corp-owned MySpace use Akamai's services to deliver online music, videos and other content.
Second-quarter net profit rose to $36.0 million from $34.3 million a year earlier, although it was unchanged on a per share basis at 19 cents.
Excluding special items, earnings per share fell to 40 cents from 41 cents, it said. Last quarter, the company had forecast earnings, excluding items of 40 cents to 42 cents a share.
(Reporting by Ritsuko Ando; Editing by Richard Chang and Bernard Orr)