Akamai Technologies, Inc. (NASDAQ:AKAM) stock soared 21% on Wednesday. The Akamai stock price shot from $39.57 to $47.80 overnight. Its shares are now heading toward the stock’s year-to-date high of $52.63. Yet Akamai stock has shown that it can plunge just as easily as it can rise. Last October, AKAM dropped from $75.55 to $60.82.
B. Riley has upgraded Akamai stock from “Neutral” to “Buy” on February 10 thanks to the strong earnings report. After all, the company reported earnings per share $0.10 above estimates and revenue $10.0 million higher than consensus estimates. (Source: “The Real Reasons For Akamai’s Gargantuan Move? Buybacks And Insider Buys,” Benzinga, February 10, 2016.)
The buyback distracts investors from the fact that Akamai has lost two important customers: Apple Inc. and Microsoft Corporation. For years, these two Silicon Valley pillars were Akamai’s best customers. Akamai is still one of the world’s top Internet and cloud content management providers, but things are about to change—and it won’t be in Akamai’s favor.
Akamai CEO Tom Leighton, warned shareholders that the company has started to notice a cut in revenue from Apple and Microsoft. This appears to be more than just a temporary phenomenon. Leighton said recently that 13% of Akamai’s revenue came from Apple and Microsoft. For 2016, these two clients will account for only six percent of revenue, as reported by AppleInsider. (Source: “Apple’s in-house CDN efforts spell trouble for Akamai as infrastructure biz warns of losses,” AppleInsider, February 10, 2016.)
For years, Apple has been investing heavily in data center and Internet backbone connections. The Cupertino-based company already owns some of the largest and most advanced data centers in the world. Plus, it has more on the way. Apple uses Akamai structures to support its “iTunes” traffic. The ever-evolving nature of Apple cloud services, such as “Apple Music,” may have changed its requirements.
Competition Is Growing for Akamai
Add to that bad news that Akamai also faces tougher competition from Amazon.com, Inc. The retail specialist is branching into information security and cloud computing. Its intensity is terrifying competitors such as Akamai.
Nomura Securities reiterated a “Buy” for Amazon stock, raising its price target because of its cloud developments. (Source: “Amazon.com (AMZN) Stock Price Target Raised to $850 at Nomura,” The Street, December 9, 2015.)
As for Microsoft, it, too, is building its cloud potential. Microsoft’s “Azure” public cloud product offers a native active directory (NAD) integration feature. However, Amazon is more cunning. Its technology allows for a smooth migration of Microsoft tools to the Amazon platform with minimal disruption.
Out of 19 analysts covering Akamai stock, most are favorable (52%). Thirteen analysts rate it a “Buy” and some have a target price of $85.00 per share, which implies a doubling of the company’s current value.
Even the pessimists have $44.00 as their lowest target. The average is $66.00, offering investors an upside of about 90% above the current stock price. (Source: “Akamai Technologies Inc (NASDAQ:AKAM) Stock Rating Reiterated by FBR Capital; The $42.00 Target Indicates 6.14% Potential,” WallStreet.org, February 10, 2016.)
Still, evolution is the only constant element in the IT sector. Akamai has already embraced inevitable change. Information security and other related areas are where the company is looking for future growth in a bid for stability. (Source: “Apple’s in-house CDN efforts spell trouble for Akamai as infrastructure biz warns of losses,” AppleInsider, February 10, 2016.)
Akamai’s “Threat Research” is now one of the keys to AKAM stock’s future success. The unit recently uncovered a sophisticated hacking campaign targeting web sites. The infected web sites distribute hidden HTML links that confuse search engine bots and hurt page rankings. (Source: “Akamai Identifies SEO Web Application Attack Campaign,” PR Newswire, January 12, 2016.)