Akamai (AKAM) Gains From Robust Cloud Security Portfolio - March 25, 2019

Akamai Technologies, Inc. (AKAM Free Report) is benefiting from robust performance of cloud security business, and notable growth in Media and Carrier Division.

Growing clout of company’s Kona Site Defender, Nominum Services, new Bot Manager Premier and Prolexic Solutions deserves a special mention.

In fact, Kona Site Defender recently secured “Best Web Application Solution” award at SC Media’s 23rd annual SC Awards ceremony, held at RSA Conference in San Francisco.

Management remains optimistic over the growing influence of its security solutions among media customers, in particular.

Notably, Akamai is one of the notable cloud security providers. It exited fourth quarter 2018 with a run-rate of around $750 million for security business.

Further, in fourth-quarter 2018, Akamai reported Cloud Security Solutions (representing 26% of total revenues) revenues of $185 million, surging almost 36% year over year (up 38% adjusted for foreign exchange).

Solid growth was driven by robust demand forEnterprise Application Access and Enterprise Threat Protector.

Strength in Cloud Security: A Key Catalyst

Cyber security is an area that holds a lot of promise in our view. Hackers are utilizingnew and sophisticated techniques to take advantage of the security loopholes of the cloud.

With rapid adoption of cloud computing, security has become a major concern for enterprises.Large enterprises are anticipatedto increase their security budgets to efficiently address security concerns and instill confidence in cloud computing.

In fact, the global IT spending on “Security Technology” is projected to exceed $124 billion in 2019 by Gartner. Moreover, per MarketsAndMarkets, the cybersecurity market is expected to witnessa CAGR of 10.2% between 2018 and 2023 to reach $248.26 billion.

We believe that growing demand for Akamai’s security solutions will translate into significant growth opportunities over the long term.

Synergies from Buyouts Favor Growth Prospects

Akamai concluded the buyout of Janrain in an all-cash transaction in the recent past. With the acquisition, the company expects to enhance its security solutions portfolio amid growing data traffic.

Specifically, Akamai intends to benefit from the integration of Janrain’s Identity Cloud with its Intelligent Edge Platform. The integration will enable Akamai to provide enhanced secure services to its CIAM customers, in turn bolstering engagement. The incremental revenues generated as a result, are anticipated to favor the top line.

Management is optimistic about the adoption of the latest Zero Trust Enterprise security solution and expects the offering to be a key sales driver, going ahead.

Notably, synergies from Nominum acquisition (completed in Nov, 2017) are enabling Akamai to enhance Enterprise Threat Protector solution as well as expand presence among carrier and enterprise customers.

Other Notable Positives

Akamai’s strong balance sheet enables it to pursue any growth strategy that includes acquisitions and further share repurchase. As of Dec 31, 2018, Akamai’s cash and cash equivalents (and marketable securities) were $1.89 billion compared with $1.80 billion recorded at the end of the previous quarter. Moreover, the company has no long-term debt.

We note that Akamai has an impressive earnings surprise history. The company outpaced the Zacks Consensus Estimate in the trailing four quarters, recording a positive earnings surprise of 9.5%.

Notably, over the past 60 days, the Zacks Consensus Estimate for current quarter has moved north by 4.1% to $1.02 per share. The figure reflects year-over-year growth of 29.1%. Further, long-term earnings growth for Akamai is pegged at 14.7%.

Zacks Rank & Other Key Picks

Akamai currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the broader technology sector include Cadence Design Systems, Inc (CDNS Free Report) , Synopsys, Inc. (SNPS Free Report) and Symantec Corporation (SYMC Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Cadence, Synopsys and Symantec is pegged at 12%, 10% and 7.9%, respectively.

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