The article was written by Blair Goldenberg, a Financial Analyst at I Know First, and enrolled in a Masters of Finance at Colorado State University.

AKAM Stock Analysis

Summary

Background of Akamai

Stock Skyrockets after Quarter Three report is released

What Caused the Better-Than-Expected Return?

The Future of Akamai

Analysts Recommendations

Background

Akamai (AKAM) is the global leader in Content Delivery Network (CDN) services, making the Internet fast, reliable and secure for its customers. The company’s advanced web performance, mobile performance, cloud security and media delivery solutions are revolutionizing how businesses optimize consumer, enterprise and entertainment experiences for any device, anywhere.

Stock Skyrockets

As with most companies, once released, the Q3 earnings heavily effect the stock price of that company. Last Wednesday, Akamai AKAM released it’s third quarter earnings, showing better-than-expected results, thus causing it’s stock price to skyrocket. AKAM reported adjusted earnings of 68 cents per diluted share, exceeding analysts’ estimates of 61 cents per share. Revenue came in at $584.1 million, higher than Wall Street’s forecasts of $572.1 million.

What Caused the Better-Than-Expected Return?

CEO Tom Leighton attributed the increase in returns to the companies accelerated growth in both their cloud security and web performance solutions. Leighton also said AKAM is less vulnerable because it is relying less on companies developing their own content distribution networks as AKAM diversifies its revenue streams.

AKAM’s largest previous customers were Apple (APPL) and Facebook (FB). AKAM’s main focus is speeding up the internet as well as increasing internet security, both of which are important aspects of our daily lives. Though they lost FB and APPL, they have grown in popularity among companies such as AT&T (T) and Amazon (AMZN), which has been corroborated by it’s 40% increase in revenue. The demand for their growing services has more than increased their attractiveness in the market. As a result of the jump, FBR capital upgraded Akamai’s standing in the market from “underperform” to “market perform,” which is great news for the tech company.

“Amazon, Apple, Facebook, Google (GOOGL), Microsoft(MSFT), and Netflix (NFLX) accounted for 10% of Akamai’s total (Q3) revenue, down from 11% last quarter and 17% last year,” said Jim Breen, an analyst at William Blair. “Excluding these customers, Akamai’s core business grew 15% annually to $526 million. “The security business continues to perform well and is gaining scale. Akamai’s cloud security solutions accelerated to 46% annual growth, from 42% last quarter, and exited the quarter at a $400 million annual revenue run rate.”

The Future

For the fourth quarter, Akamai sees adjusted earnings per share in the range of 65 cents to 70 cents on revenue of $593 million to $613 million. Analysts surveyed by FactSet are looking for earnings of 67 cents per share on revenue of $606 million.

Analysts Recommendations

Conclusion

The loss of APPL and FB didn’t effect AKAM as much as would be expected because of their popularity. Amazon, Apple, Facebook, Google, Microsoft, and Netflix all only accounted for only 10% of all of the revenue in Q3. AKAM wasn’t affected because together APPL and FB they were only a minute piece of the revenue for this quarter. Recently, 40% of their growth was attributed to the acquisition of AMZN and T as customers, making the loss even less of an issue for the company. Now that they’ve acquired some of the top companies on the internet, their revenue can only grow. Now would be the time to buy before the stock price continues to climb. As shown below in the heat-map, I Know First currently maintains bullish stance on AKAM.

The forecast is color-coded, where green indicates a bullish signal while red indicates a bearish signal. Brighter greens signify that the algorithm is very bullish as it does at the top of this forecast. The signal is the number flush right in the middle of the box and the predicted direction (not a specific number or target price) for that asset, while the predictability is the historical correlation between the prediction and the actual market movements. Thus, the signal represents the forecasted strength of the prediction, while the predictability represents the level of confidence.