Akamai Technologies, Inc. (NASDAQ:AKAM) reported its second quarter financial results after the close of trading last night, with the results showing that the cloud services provider missed the Street’s expectations on earnings, while also providing soft guidance for the third quarter, which made its investors wary, sending shares down by 7.40% in morning trading. Akamai Technologies, Inc. (NASDAQ:AKAM) reported adjusted EPS of $0.57 on total revenue of $540.7 million. However the Zacks consensus estimate stood at EPS of $0.58 on revenue of $540.1 million. Even though the company reported a slight beat on revenues, the earnings miss coupled with the lower third quarter guidance has prompted the sell-off. The cloud services provider offered third quarter revenue guidance of $543 million – $555 million with an earnings guidance of $0.56 – $0.58 per share. These figures were well below consensus expectations of $565.1 million in revenues with earnings of $0.62 per share. The stock had gained around 15% so far in 2015, with most of the gains coming in the first quarter. But the disappointing third quarter guidance might hit the stock hard over the next few days.
Hedge funds were slightly bullish on Akamai at the start of the year. At the end of the first quarter, a total of 37 of the hedge funds tracked by Insider Monkey were bullish in Akamai Technologies, Inc. (NASDAQ:AKAM), with a total investment of $1.12 billion, an increase of 16% compared to the aggregate holdings of the 36 hedge funds with positions in the company at the end of the fourth quarter. During the January – March period the stock appreciated by around 13%, which indicates that hedge funds did not add very much to their positions, despite the 16% increase in their collective value.
But why do we track hedge fund activity? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect the hedge funds’ activities. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small cap stock picks among hedge funds also bested passive index funds by around 66 percentage points over the 34 month period beginning in September 2012, returning over 123% (read the details here).
Likewise, other research (not our own) has shown insider purchases are also effective piggybacking methods for investors that lead to greater returns. That’s why we believe investors should pay attention to what hedge funds and insiders are buying and keep them apprised of this information. Looking at Akamai Technologies, Inc. (NASDAQ:AKAM) there were no insider purchase of the stock during the first half of this year, but there were a few insider sales. Executive Vice Chairman of the Board, Paul Sagan sold around 170,000 shares, and President of Product and Development, Rick McConnell sold around 33,000 shares so far this year.
Taking this in consideration, let’s review the latest actions surrounding Akamai Technologies, Inc. (NASDAQ:AKAM).
What does the smart money think about Akamai Technologies, Inc. (NASDAQ:AKAM)?
According to Insider Monkey’s hedge fund database, Clifton S. Robbins’ Blue Harbour Group had the most valuable position in Akamai Technologies, Inc. (NASDAQ:AKAM), with around 5.5 million shares worth close to $389.5 million, comprising 11.8% of its total 13F portfolio at the end of March. The second-most bullish hedge fund manager was the Philippe Laffont-led Coatue Management, which held around 4.5 million shares valued at $322.4 million; the fund had 3.1% of its 13F portfolio invested in the stock. Some other peers with similar optimism encompassed Cliff Asness’ AQR Capital Management, David Goel and Paul Ferri’s Matrix Capital Management, and Robert Bishop‘s Impala Asset Management.
There were some hedge fund managers who opted to open fresh positions in the stock during the first quarter. Matrix Capital Management initiated the largest position in Akamai Technologies, Inc. (NASDAQ:AKAM) during the first quarter, while Impala Asset Management’s position in the stock was also a new one. The other funds with brand new Akamai positions include Stanley Druckenmiller’s Duquesne Capital, Gordy Holterman and Derek Dunn’s Overland Advisors, and Andrew Sandler‘s Sandler Capital Management.
Hedge funds were slightly bullish on the stock during the first trimester, but the latest second quarter earnings and soft third quarter guidance raise concerns about the outlook for Akamai Technologies, Inc. (NASDAQ:AKAM) for the rest of 2015 in the crowded cloud services space. We don’t recommend buying it at this time.
Disclosure: None
