Akamai Technologies Inc. ( AKAM - Analyst Report ) is scheduled to release its fiscal fourth quarter 2011 results after the closing bell on February 8, 2012. In the run up to the earnings release, we have noticed positive movement in analyst estimates.

Recap of Third Quarter

Though Akamai’s third quarter earnings missed the Zacks Consensus Estimates, EPS logged an increase of 8.7% from the year-ago quarter. The year-over-year growth was primarily driven by strong revenues; partially offset by higher expenses, which dragged down margins in the reported quarter.

Akamai’s top line was up 11.2% on a year-over-year basis and surpassed the Zacks Consensus Estimate. The better-than-expected result was primarily driven by continued solid growth for value added solutions.

For further details, please read: Akamai Misses, Margins Lag

Expectations from Fourth Quarter

For the fourth quarter, Akamai expects revenues in the range of $303.0 million to $315.0 million (6% to 11% year-over-year growth). The favorable foreign exchange rate is expected to have an impact of approximately $2.0 million on a year-over-year basis. The Zacks Consensus Estimate is pegged at $311.0 million.

EPS is expected to be between 37 cents and 41 cents, including tax charges of $25 million to $30 million, based on a full-year GAAP tax rate of about 36%. Currently, the Zacks Consensus Estimate (including stock-based compensation) for the fourth quarter is pegged at 31 cents per share, well below the guided range.

Akamai expects gross margins to remain flat on a sequential basis. For the quarter, Akamai expects operating expenses to increase approximately $10.0 million year over year. Akamai expects adjusted EBITDA margin in the range of 43% to 44%.

Akamai forecasts capital expenditure (excluding equity-based compensation) of approximately $50 million for the forthcoming quarter. For fiscal 2011, capital expenditure is expected to be 16% of revenues.

Estimate Revision Trend

In the last thirty days, out of the 17 analysts covering the stock, one analyst has raised estimates while none of the analysts’ estimates moved the other way. However, the Zacks Consensus Estimate for the fourth quarter remained at 31 cents per share.

For fiscal 2011, the Zacks Consensus Estimate is pegged at $1.15 per share.

The analysts covering the stock are positive about Akamai’s market share (approximately 60%) in the Internet content delivery market. Moreover, analysts expect Akamai to report a decent quarter on the back of strong e-commerce and value-added services. Additionally, increase in online spending, coupled with newer additions of clients and strong advertising trends are expected to be the key drivers going forward.

However, contrarian views from another set of analysts suggest that Akamai will face revenue pressure in the first half of 2012 due to the aggressive pricing by the company to get it in line with Level 3 Communications Inc. ( LVLT - Snapshot Report ) and Limelight Networks Inc. ( LLNW - Snapshot Report ) . Akamai had commanded a premium to the market price and had slashed its pricing for the services to secure more deals.

Recommendation

Akamai’s positive earnings surprise for the past four quarters averages at a modest 3.6% and for the current quarter we expect the company to beat the Zacks Consensus Estimate by the same magnitude.

We believe that increased usage of cloud computing technology ensures higher adoption of value-added solutions, which will drive strong top-line growth going forward. Moreover, strong demand for security products, aggressive share repurchase and strategic partnerships are positives for the stock over the long term.

However, weak traffic growth remains a concern, as Akamai continues to face intense pricing pressure from competitors like Level 3 Communications, Limelight Networks, Inc. and carriers such as AT&T Inc. ( T - Analyst Report ) and Verizon Communications ( VZ - Analyst Report ) , who are developing their own content delivery network. We believe this will hurt revenue growth going forward.

We maintain our Neutral recommendation on a long-term basis (6-12 months). Currently, Akamai has a Zacks #3 Rank, which implies a Hold rating on a short-term basis.