Akamai Technologies

AKAM : NASDAQ : US$57.86
Target: US$68.oo

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 on-demand streaming videos to
conventional web content, to c-commerce tools. The
company is headquartered in Cambridge, Massachusetts


Telecommunications — Telecommunications

Investment recommendation
Akamai hosted its annual investor day on Tuesday, reiterating some of the
common themes that continue to support our long-held BUY-rated thesis.
With overall Internet traffic growth continuing to accelerate and with the
likely traction of newer lines of business like carrier services or the
security business, we believe top-line revenue growth will continue at the
mid- to high-teens range with the potential for continued margin
expansion over time. With two stellar quarters behind us at a very
controversial time for the company and with Q1/14 guidance that far
exceeded expectations, we continue to recommend the shares. With
increasing confidence in the outlook, we increase our target to $68,
representing a 12.0x EBITDA multiple and 26.0x EPS on 2015 estimates.
Investment highlights
Solid momentum likely continues – Although the company avoided talk of
the near-term trends that resulted in the recent increase in Street
estimates, we believe Akamai continues to greatly benefit from being one
of the few sources capable of terminating incremental traffic on
increasingly constrained ISP networks.
Outlook calms fears – With the recently renewed contract with its largest
customer, estimated to be 9% of revenues and growing, we remain
confident 2014 will possess significant tailwinds. However, it remains
unclear when Apple will begin to migrate any traffic to their developing
CDN network. Longer-term guidance was adjusted on Tuesday, but only
Incremental growth drivers on tap – With the investments in the sales
force and ordering systems in 2013that continued into 2014, we expect to
begin to witness returns that could drive revenue growth and EBITDA
margins higher. However, in the near term we would expect some
incremental dilution from the integration of the recent Prolexic aquisition.


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