Top Analyst Says Akamai Technologies, Inc. (AKAM) Media Delivery Recovery Bodes Positively for Shares

Piper Jaffray's Michael Olson boils down a bullish case after AKAM delivers a strong Q3 print.


Akamai Technologies, Inc. (NASDAQ:AKAM) investors were enthused once their eyes saw yesterday evening’s third quarter print that revealed a stellar quarterly performance carried by media delivery upside.

Today, shares have been sent flying almost 8% and top analyst Michael Olson at Piper Jaffray continues from his bullish platform on the network equipment maker, trumpeting that “confidence in media delivery rebound leads to above Street Q4 guide.”

In reaction to the strength of the tech player’s earnings, the analyst has become exceedingly positive, reiterating an Overweight rating on AKAM stock while bumping up the price target from $55 to $60, which represents a 7% increase from where the stock is currently trading.

For the third quarter, AKAM’s performance and security segment experienced an 11% year-over-year surge, which is advantageous considering this business comprises of 61% of the company’s revenue. This time last year, the segment had earned 59% of the company’s revenue. Though media delivery tripped 3% year-over-year, a 29% chunk of Akamai’s revenue, notably, this is an improvement when up against the previous back-to-back quarter’s 9% drop. Moreover, media delivery brought $183 million to Akamai’s table, soaring past the Street’s expectations looking for $170 million.

Olson highlights, “The lower near-term margin is due to investment in new products in security and enterprise solutions, as well as dilution from Nominum. For Media Delivery, mgmt appears to have confidence in the initiatives put in place to improve the revenue trajectory; price reductions are no doubt a component of winning back traditional CDN customers and stabilization among the ‘big 6.'”

For context, the “big 6” customers represent Microsoft, Google, Facebook, Apple, Amazon, and Netflix, with this giant consumer base now just pointing to 8% of Akamai’s revenue, a notch under the 16% seen in the fourth quarter of 2015. Worthy of note, the “big 6” also comprised of 8% of revenue for the company in the first half of 2017, which leads the analyst to find waning of this revenue mix for the giant customers has “stabilized.”

“While upside in Q3 was driven by media delivery, the mix shift towards higher margin performance & security solutions continued on a y/y basis,” the analyst elaborates, noting that Akamai also outperformed the Street’s forecasts on the fourth quarter guide, with revenue hitting 1% past consensus and EPS 6% over consensus estimates, as the Akamai team anticipates “Media Delivery to continue to rebound and EBITDA margin to stay in the mid-30s range.”

Ultimately, “If the company’s visibility into the media delivery business has, in fact, improved and the fundamentals of that segment are becoming more favorable, investors would likely be willing to assign a higher multiple to AKAM shares,” Olson concludes, believing this media delivery rebound bodes well for Akamai’s prospects moving forward.

Michael Olson has a very good TipRanks score with a 68% success rate and a high ranking of #65 out of 4,703 analysts. Olson realizes 18.6% in his yearly returns. However, when recommending AKAM, Olson forfeits 2.5% in average profits on the stock.

Wall Street is cautiously optimistic on the network equipment maker, with TipRanks analytics exhibiting AKAM as a Buy. Based on 16 analysts polled by TipRanks in the last 3 months, 6 rate a Buy on Akamai stock while 10 maintain a Hold. The 12-month average price target stands at $59.58, marking a nearly 15% upside from where the stock is currently trading.