The Most Important Takeaway in Akamai's 3rd-Quarter Report

Mark the date. Akamai Technologies is back on my watchlist as a potential buy.

Fools who've followed my coverage of the company know I was an early backer and, then, a shareholder; but I sold two years ago when I saw evidence of a structural weakness in Akamai's underlying business. The stock has more than doubled since.

Why am I back on board now? Cisco Systems . A deal with the data-networking giant will put Akamai software in Cisco's higher-end routers, accelerating anything data as it passes through. "This is how we got our software into the enterprise environment, into the branch office," CEO and co-founder Tom Leighton said in an interview following last night's Q3 earnings report.

Revenue improved 15% year over year, to $396 million, resulting in $0.50 of non-GAAP earnings per share. Analysts had been modeling for $387.5 million and $0.46, respectively, which would indicate a solid beat on both the top and bottom lines. Trouble is, Akamai added $0.07 of depreciation and tax benefit to its EPS total, and investors (rightly) tend to view such artificial sweetener differently.

In this case, they're selling. Shares of Akamai are down more than 11% as I write this afternoon, and not just because of what some see as an earnings miss. Guidance also came in light. Leighton and his team are expecting between $412 and $430 million in Q4 revenue, or $421 million at the midpoint. Analysts were modeling for $423 million.

So be it. Let the sellers sell. The Cisco deal, while in the early stages -- Akamai recently demonstrated a proof-of-concept at its customer conference, Leighton said -- foretells a future in which the company sells not only acceleration-related services, but, also, software to every major supplier of network-connected devices.

Think of it like the Intel model. The chipmaker doesn't make PCs, but you'd probably feel better about a PC with Intel Inside. Leighton wants a world in which Akamai is inside, accelerating and optimizing data where it's created. Maybe it'll take a decade, but I believe he and his team will get us there.

Now it's your turn to weigh in. What did you think of Akamai's Q3 report and the Cisco deal? Leave a comment in the box below to let us know what you think.

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Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He didn't own shares in any of the stocks mentioned in this article at the time of publication. Check out Tim's web home and portfolio holdings or connect with him on Google+, Tumblr, or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.The Motley Fool recommends Cisco Systems and Intel. The Motley Fool owns shares of Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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