Today’s stock represents another of our favorite strategies of investing in growth stocks. This involves picking businesses that are dominating players in their industry and stand to gain from the rise of everything digital. Such stocks have the potential to post above-average returns as the demand for their services continues to gain in the digital age.
The case in point being Akamai Technologies Inc (NASDAQ:AKAM), which is the world’s leading Cloud Delivery Platform. Its industry-leading scale and resiliency mean that its customers can deliver their critical content with consistency, quality, and security across any device, anywhere, anytime. The company helps its clients deliver a wide spectrum of content including media, software downloads, and personalized data.
As a global leader in content delivery network (CDN) services, Akamai helps make the internet faster, more reliable, and securer for its customers like Airbnb, Apple Inc. (NASDAQ:AAPL), Autodesk, Inc. (NASDAQ:ADSK), Electronic Arts Inc. (NASDAQ:EA), Home Depot Inc (NYSE:HD), Paypal Holdings Inc (NASDAQ:PYPL), and many more. Its cloud services deliver, optimize, and secure content as well as business applications over the Internet. Today, web pages have become more complex and full of advertisements, videos, graphics, and other third-party content, which causes speed and reliability to suffer. Effective CDN solutions that accelerate content delivery, as well as offer web security, are the need of the hour and this is positive for AKAM stock.
As per the recent forecast by MarketsandMarkets Research Private Ltd., the global Content Delivery Network market is expected to grow from $6.05 billion in 2016 to $30.89 billion by 2022. This represents a CAGR of 32.8% during the forecast period of 2017-2022. (Source: “Content Delivery Network Market – Global Forecast to 2022,” MarketsandMarkets, December 2017.)
Akamai’s solutions improve the response times of dynamic web sites and applications besides enabling enterprises to execute their digital media distribution strategies. With streaming movies, television, and live events representing a big percentage of traffic on the Internet, Akamai’s technology solutions shall grow in demand and boost Akamai stock.
But let us focus on a part of the company’s performance and security solutions that look quite promising. Akamai’s cloud security solutions defend web sites, applications, and data centers against a multitude of cyberattacks, which have gone up in number in recent times.
Just last week, the company was identified as a leader in DDoS Mitigation Solutions, by Forrester. DDoS or Distributed Denial of Services mitigation solution market is growing as such threats are increasingly becoming a bigger threat to digital businesses around the world. (Source: “Akamai identified As a DDoS Mitigation Leader by Independent Research Firm,” Akamai Technologies Inc, December 8, 2017.)
DDoS is a kind of cyberattack where a site can be taken down with a flood of requests. Akamai’s “Kona Site Defender” solution, for example, protects customers’ web sites and applications even if they are not prepared for such attacks. Kona leverages the enormous capacity of the Akamai platform to protect its customers from large DDoS attacks.
The company’s focus on continuous innovation shall help it stay ahead in this competitive market and provide support to AKAM stock. And there are signs that the management is taking the right steps.
Akamai reported its third-quarter results recently and delivered another strong quarter of top and bottom line performance. Revenue was $621.0 million, a six-percent increase year-over-year. The revenue came in at the high end of the company’s guidance range. The fastest-growing part of the business was the Cloud Security portfolio, which grew 27% year-over-year to $121.0 million in revenue and accounts for about 20% of Akamai’s total revenue. (Source: “Akamai Reports Third Quarter 2017 Financial Results,” Akamai, October 24, 2017.)
Akamai stock has suffered in the past due to concerns over its media business. However, the management is confident that current strategies shall lead to improved performance in the future.
AKAM stock has not impressed over the last one year on account of higher expenses and weakness in the media business. However, this is likely to change in the coming years as the company executes its strategy in the rapidly evolving industry.
Chart courtesy of StockCharts.com
Akamai offers one of the world’s largest and most trusted cloud delivery platforms. The CDN market is growing rapidly and shall continue to do so as the demand for video, live streaming, and dynamic content keeps on increasing. Although AKAM stock may come under pressure due to increased competition, it is a good bet on the growing CDN market.
As traffic volume increases in the future, the company shall continue to gain market share. Akamai’s solutions deliver excellent value to its customers and its innovations shall help customers thrive as the Internet landscape continues to rapidly evolve.
Digital businesses are getting disrupted by the emerging challenges of increasing traffic and cyber threats, which are intensifying in magnitude and sophistication. As a leader in cloud security solutions, Akamai has a competitive advantage, which shall translate into higher Akamai stock prices. Investors should take advantage of this opportunity.