Cowen Downgrades Akamai On 'Lack Of Visibility'

• Akamai Technologies, Inc. AKAM shares are down 5 percent year-to-date, even after hitting a high of $78 on May 14.
• Cowen’s Colby Synesael downgraded the rating on the company from Outperform to Market Perform, while reducing the price target from $75 to $70.
• Lack of visibility into the reversal of a slowdown and return to growth make the investment risky, Synesael stated.

Akamai reported in-line 3Q results, with revenues of $551.0 million, EBIDA of $222.2 million and non-GAAP EPS of $0.62. The company issued 4Q15 guidance well below expectations due to lower traffic from its three largest customers.

“While mgmt. was unwilling to disclose how much rev. they represent they stated that these accounts grew 40% Y/Y in 4Q14. These three companies are seeing less traffic growth than they anticipated just a quarter ago and thus have pulled back on the traffic which they allocate to AKAM,” analyst Colby Synesael wrote.

The company expects to post 4Q15 revenues of $557-577 million, versus Street expectations of $$596.7 million, and non-GAAP EPS of $0.60-$64, versus the Street estimate of $0.66.

Akamai’s management also signaled that they expect weakness to continue into 2016 and there is lack of visibility into when the trends will improve. The company’s performance business also continues to generate moderate growth, Synesael stated.

“While we still don’t think anyone disputes that growth at some point will reaccelerate, driven at least in part by OTT, this now seems highly unlikely to happen until at least 2H16 making the risk/reward less attractive and warranting us to step to the sidelines,” the Cowen report noted.