AKAM : NASDAQ : US$50.57
Akamai provides content delivery and cloud infrastructure services for accelerating and improving the delivery of content
and applications over the Internet, ranging from live and ondemand streaming videos to conventional web content, to commerce tools. The company is headquartered in Cambridge, Massachusetts.
All amounts in US$ unless otherwise noted.
iOS7, COST STRUCTURE IMPROVEMENT POINT TO UPSIDE; RAISE PT TO $56 FROM $51
Upon further review of the details of the company’s cost structure, provided after the earnings report in their 10-Q and in conjunction with the latest launch of Apple’s operating software that will consume substantially more capacity to download than prior versions, we are increasingly confident that Akamai will face greater tail-winds in 2H13 than we had previously expected. We are retaining our buy rating and increasing our price target to $56 from $51.
Stronger tail-winds expected – We continue to believe the 2013 outlook remains conservative and that the forecast for low 40% EBITDA margins and significantly slowing top-line growth was simply too conservative, as shown with the Q2/13 report. iOS7 downloads could drive better growth – As the average download size for the latest iOS upgrade could approach nearly 2x that of last year’s download with many more devices deployed, it is possible that this event could drive upside to 2H13 results.
Cost structure continues to improve –Upon review of the details of the company’s cost structure as provided in the 10-Q, we continue to believe Akamai harbors the opportunity to make continued improvements such that margins will again rebound to the mid-40’s level.
Marginal earnings and multiple adjustments – With continued improvements to the outlook in 2H13 and beyond, in spite of the investments that have depressed margins in the near term, we are slightly increasing our estimates and our target multiple to 11.5x estimated 2014 EBITDA.