Summary
- Akamai security business segment is well-positioned to profit from a post-pandemic growth boost as the industry is a secular growth vector.
- The recently announced acquisition in cloud computing is likely to significantly increase Akamai’s revenue growth rate over the coming years.
- The decision to suspend its sales efforts in Russia and Belarus will not have a significant impact.
- EPS growth rate accelerated to 30.71% CAGR and operating margin to 24.77% over the past 3 years.
- Akamai’s stock price is likely undervalued by at least 17% and showed some significant relative strength and resilience, even in more volatile markets.
Investment thesis
Akamai Technologies, Inc. (NASDAQ:AKAM) is a market leader in content delivery networks (CDN) and is significantly growing in the cyber security industry. The COVID-19 pandemic had some opposite impact on its business, while temporarily slowing down sales in its security segment, it caused a short momentum in sales in its CDN business. I see both effects as just shortly affecting the company. With economies adjusting to the new situation, and many industries accelerating the ongoing digitalization process, cyber security is becoming a very strong growth driver for the company, which will now double down on its growth potential with the announcement of a strategic acquisition in cloud computing. Akamai can leverage its solid and competitive business while now focusing on faster-growing opportunities in the market. The company has an interesting setup for long-term investors and even momentum traders could take advantage of an ideal entry point, with a minimal price target seen at $127.88.
A quick look at Akamai
Incorporated in 1998 and headquartered in Cambridge, United States, Akamai provides cloud services for delivering, optimizing, and securing online content and web applications in the United States as well as internationally. Today the company employs about 8,700 employees and offers one of the most distributed edge computing and content delivery networks CDN with approximately 365,000 servers in more than 135 countries and over 1,350 networks around the world.
Akamai has two main business segments, CDN and Security. While its CDN business unit is still significantly bigger in terms of revenue, the past years show how fast its Security business unit is growing, by almost tripling revenue in the past 5 years.
