DA Davidson Upgrades Akamai: 'Revenue From New Products Has Tripled In Just The Last Year'

D.A. Davidson has increased confidence in Akamai Technologies Inc. AKAM's strategic direction after a conversation with the cloud company's management.

The Analyst

D.A. Davidson's Mark Kelleher upgraded Akamai from Neutral to Buy and increased the price target from $80 to $93.

The Thesis

Enabled by a strong position within the content delivery market, Akamai is strongly executing its transition to a security vendor, Kelleher said in a Monday note. (See his track record here.) 

“Over the last few quarters, Akamai has been experiencing enhanced demand and interest in its security products, which has been contributing to its outperformance. Cloud security now represents a quarter of the company’s business and continues to show significant growth and opportunity,” the analyst said. 

Akamai is also showing strong growth in areas such as its web application firewall, edge security, bot risk management and zero-day capabilities, Kelleher said. New products like mPulse, bot manager and enterprise threat protector have also demonstrated strong traction, he said. 

“Revenue from its new products has tripled in just the last year, with a current run rate of approximately $170 million. Furthermore, Akamai continues to invest significantly in this segment, with a focus on growing its product portfolio,” Kelleher said.

After an extended struggle in the media segment, Akamai has returned to growth after the acquisition of Nominum, the analyst said. Going forward, Kelleher anticipates over-the-top media and gaming will be the company's strongest catalysts.

Akamai has enacted an aggressive stock buyback process, according to D.A. Davidson. 

“In May, Akamai closed a $1.15-billion convertible debt offering and secured a $500-million revolving credit facility. The company plans to use this capital to fund its previously announced capital return initiatives, as well as to opportunistically pursue M&A,” Kelleher said.

“Last quarter, AKAM spent $166 million on share repurchases and it plans to spend its full $750 million share repurchase authorization by the end of the year.”

Price Action

Akamai shares were trading up nearly 3 percent at $76.73 at the time of publication Monday. 

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Photo courtesy of Akamai.