Akamai Says CEO Sagan to Leave; Profit Less Than Estimates

Akamai Technologies Inc. (AKAM), which helps businesses deliver data at faster speeds over the Internet, said Chief Executive Officer Paul Sagan will leave by the end of 2013.

The Cambridge, Massachusetts-based company is starting a search to replace Sagan, who became president in 1999 and CEO in 2005. Akamai’s sales more than quadrupled during his leadership, to $1.16 billion in 2011 from $283.1 million in 2005.

Sagan, 53, has been with Akamai for almost 14 years, helping the company become less dependent on its content- delivery network business, which was becoming commoditized. He acquired companies to add services and products that would differentiate Akamai from competitors, said Sameet Sinha, an analyst at B. Riley & Co. in San Francisco.

“They’re positioning themselves as a cloud-computing applications-services provider, while their competitors just sell core CDN,” Sinha said. “Paul has been around a long time in a tough industry.”

Second-quarter profit excluding some costs will be 36 cents to 38 cents a share, James Benson, Akamai’s chief financial officer, said during a call with analysts yesterday. That’s less than the average analyst estimate of 39 cents, according to data compiled by Bloomberg. Sales will be $322 million to $330 million, more than analysts’ average estimate of $314.8 million.

Photographer: Francis Specker/Bloomberg

Paul Sagan, chief executive officer of Akamai Technologies Inc. Close

Paul Sagan, chief executive officer of Akamai Technologies Inc.

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Photographer: Francis Specker/Bloomberg

Paul Sagan, chief executive officer of Akamai Technologies Inc.

Akamai shares declined 8.8 percent to $35.35 at 9:37 a.m. in New York. The stock has climbed 20 percent this year before today.

No ‘Radical Change’?

“Of course, he would like to go out with great numbers,” said Donna Jaegers, an analyst at D.A. Davidson & Co. in Denver, referring to Sagan. “I don’t sense that there’s going to be a radical change in the company.”

Akamai’s customers include Apple Inc. (AAPL) When former CFO J.D. Sherman departed earlier this year, Akamai promoted Benson, who had joined the company in 2009 from Hewlett-Packard Co. (HPQ) This time, they’re likely to replace Sagan with an outside candidate with a corporate sales background, Sinha said.

“They need somebody who’s not a telecom guy,” Sinha said. “They need somebody who’s worked in hardware or software who has enterprise sales experience.”

Sagan, a cousin of scientist Carl Sagan, has a background in broadcast journalism. In 1991, while working at Time Warner Inc., he helped design and introduce NY 1 News, the cable network in New York City, and later helped found Road Runner, the first broadband cable-modem service. He joined Akamai in October 1998.

‘Next Level’

“Starting a search now means the board and I can take the time we need to find the right person to elevate the company to the next level and achieve the $5 billion revenue goal I set for us by the end of this decade,” Sagan said on a conference call. “I intend to vigorously lead the company until my successor has been named.”

Akamai, which went public at the height of the Internet boom in late 1999, lost most of its value after the bubble burst. Sagan helped lead Akamai after its co-founder, Daniel Lewin, died aboard American Airlines Flight 11, which crashed into the World Trade Center on Sept. 11, 2001.

Sagan owns $15.4 million worth of shares in Akamai, according to data compiled by Bloomberg. Today, the company is being helped by demand for services that push data-heavy digital media content, such as videos, around the world more quickly. While Sagan is still running the company, he needs to get more traction internationally, Jaegers said.

“They need to grow faster in China and India and they need to increase the size of the sales force to take advantage of opportunities in the enterprise,” she said.

Acquisition Prospects

The CEO transition will make an acquisition of the company less likely, Jaegers said.

The company also said first-quarter sales rose to $319.4 million, topping $310.8 million, the average analyst estimate. Profit excluding some costs was 41 cents a share, Akamai said in a statement yesterday. That beat the 38-cent estimate.

Net income fell to $43.2 million, or 24 cents a share, from $50.6 million, or 26 cents, a year earlier, the company said.

To contact the reporters on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net; Sarah Frier in New York at sfrier1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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