With Media Trends Unlikely To Improve, Baird Downgrades Akamai

1. Lack Of Visibility

First, the analyst noted gaming and download activity are weakening, which create concerns media revenue will deteriorate. As such, this creates a "significant overhang" in the stock over the medium term.

2. Street Is Overly Optimistic

Second, Power believes the Street's forecast of a flat third-quarter sequential media revenue estimate of $173 million is too high. Also, the analyst's full-year revenue estimate of $2.47 billion and earnings per share of $2.47 are below the Street's current estimates of $2.50 billion and $2.56 per share.

3. $100 Million In Revenue At Risk

Third, the analyst noted that the top six internet platform companies account for just 8.4 percent of revenue, and further declines to a 4 to 5 percent range could shave another $100 million of total revenue.

4. Margin Concerns

Fourth, Akamai's EBITDA margins have "steadily" declined from 43.4 percent in 2014 to 37.4 percent in 2017.

5. Fair Valuation

Finally, the analyst argued Akamai's stock is trading near his 20x 2018 earnings per share valuation, which is "fair" given the company's moderating top-line growth combined with lower earnings per share in 2017.