Competition and high expectations are keeping Akamai Technologies (AKAM)a Hold, according to Zacks analyst Steve Biggs, CFA. Read about the pluses and minuses for the company, and get a close look at its soon-to-be-reported second quarter:
Akamai Technologies, Inc. (AKAM) continues to post spectacular growth as demand for bandwidth heavy applications and media accelerates. However, a growing market for Akamai's services is likely to attract more competition. Moreover, the company's record of growth and exceeding quarterly expectations has created very high expectations, which will be increasingly difficult for the company to live up to. We therefore maintain a Hold recommendation on AKAM shares.
Akamai Technologies, Inc. is expected to announce results for the second quarter of 2007, ended June 30, 2007 on July 25, 2007. For the second quarter, management expects revenue in the $149 to $153 million range and EPS in the $0.29 to $0.30 range excluding intangible and stock based compensation expenses. Integration of Netli and other recently completed acquisitions are expected to pressure margins during the second quarter. For the full year, management is expecting revenue in the $610 to $625 million range and EPS in the $1.26 to $1.30 range, excluding intangible and stock based compensation expense.
Akamai is currently trading at a rich P/E multiple of 54.7x 2007 EPS estimates. On a P/S basis, the stock is trading at 13.4x our estimated 2007 revenue. As the stock s valuation has risen, so have expectations , increasing the risk of a disappointment. With new contract signings, low customer churn, and the potential from growth in online media, we are confident regarding the company s ability to meet and exceed growth expectations. However, we maintain a Hold recommendation on the shares of Akamai given our concerns over increased competition and high expectations. Thus, we set our price target at $53.00, representing a P/E multiple of 57.6x and a P/S multiple of 14.1x 2007 estimates.
Akamai Technologies, Inc. is a global provider of distributed e-business infrastructure services and solutions. Its services include dynamic content and application delivery, application performance technologies, traffic management, identification of end-user location, online storage, and load balancing.
Read the analyst report on AKAM
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