Is Akamai stock a good buy?
In this article, we review Akamai stock to determine if it’s a good buy, sell, or hold.
Akamai is a CDN (cloud delivery network), cybersecurity, and cloud service company founded in 1998 and headquartered in Cambridge, MA.
Table of Contents
- Tykr Rating
- Akamai Company History
- Akamai Business Model
- Akamai News
- Akamai Competition
- Akamai 4Ms
- Akamai Financials
- Is Akamai stock a good buy?
Tykr Rating
- Summary: On Sale
- Score: 16/20
- MOS: 80%
- Share Price: $120
- Sticker Price: $605
Akamai Company History
- In 1995/1996, Dr. Tom Leighton began experimenting with an algorithm that would reduce web congestion.
- In 1996, Danny Lewin come to MIT to work with Dr. Leighton on improving the algorithm. They discovered they were able to route and replicate content over a large network of distributed servers. Essentially, they were ahead of the curve with the internet and were looking to solve a major problem that we could all face which was the internet would slow down as more people consumed content.
- The company launched and went public in the same year which can be a disaster. Not only that, but the company went public just before the dot-com bubble. In this circumstance, the stock went public at $145 per share. Based on hype and momentum, the stock went to $327 within 2 months. Within 4 months after its all-time high, the stock went down to $65 and another 4 months later the share went down to $4. Resulting in a 98% loss in the first year. The share price has been on a slow incline over the last 20 years where it never reached its all-time high. This is why it’s important for companies to stay private for years and prove financial strength before considering going public.
- In 2001, Daniel Lewin, was unfortunately killed in the September 11th terrorist attacks at age 31. He was on one of the planes that flew into the world trade center.
- In 2005, Paul Sagan took over as CEO.
- In 2013, Tom Leighton took over as CEO.
- In 2021, Akamai announced it would be reorganized into two groups, one being Security Technology and the other being Edge Technology.
Akamai Business Model
How does Akamai make money?
Akamai is a B2B SaaS company that offers the following solutions.
- Cybersecurity – This includes App and API security, remote work security, account takeover protection, and DDoS (Distributed Denial of Service) Protection.
- CDN – This allows websites, software applications, and apps to run fast.
- Edge Computing – Edge computing is the practice of capturing, storing, processing, and analyzing data near the customer, where the data is generated, instead of in a centralized data-processing warehouse.
Akamai serves the following industries
- Broadcast Media – Some of their customers include Fox, CBC, iHeart Media, Hotstar, and DAZN.
- Public Sector – Some of the organizations include the US Department of Defence, N4L, DOTComm, and MCNC.
- Publishing – Some of the publishers include The Washington Post, SmartNews, Business Standard, AP, and telegraphmediagroup.
- Financial Services
- Gaming
- Ecommerce
- Healthcare and Life Sciences
- Hospitality and Travel
Akamai News
This article from zacks.com states that Akamai recently announced it has completed the buyout of Linode for $900M. Linode is a cloud computing platform competitive to AWS and Azure. The acquisition will help Akamai become the world’s largest content distribution network.
This article from seekingalpha.com states that Akamai is setting up as a long-term winner. The continuously increasing EPS growth rate, acquisition of Linode, and post-pandemic digital growth are all contributing factors that are boding well in the company’s favor.
This article from schaeffersreasearch.com states that Akamai is the “best-kept secret in cybersecurity”. The financial strength of the company has greatly improved and moved this stock to a buy rating.
This article from investorplace.com states the company believes it can grow 20% per year over the next three to four years. They are a market leader in several areas including DDoS prevention, web app firewalls, and CDN.
Akamai Competition
Akamai (AKAM)
- Summary: On Sale
- Score: 16/20
- MOS: 80%
- Share Price: $120
- Sticker Price: $605
- Revenue: $3.46B
Cloudflare (NET)
- Summary: Overpriced
- Score: 6/20
- MOS: 1%
- Share Price: $130
- Sticker Price: $131
- Revenue: $656M
Zscaler (ZS)
- Summary: Overpriced
- Score: 8/20
- MOS: 1%
- Share Price: $243
- Sticker Price: $246
- Revenue: $673M
Amazon (AMZN)
- Summary: On Sale
- Score: 14/20
- MOS: 80%
- Share Price: $3,386
- Sticker Price: $17,021
- Revenue: $469B
Alphabet (GOOGL)
- Summary: On Sale
- Score: 19/20
- MOS: 80%
- Share Price: $2,850
- Sticker Price: $14,326
- Revenue: $257B
Microsoft (MSFT)
- Summary: On Sale
- Score: 19/20
- MOS: 80%
- Share Price: $315
- Sticker Price: $1,585
- Revenue: $168B
Akamai 4Ms
MOS (Margin of Safety): The financials of this company are very strong. The stock has been On Sale since July of 2020 and now the score sits at 16/20. This is a significant improvement over the financials from 20 years back when the company originally went public. The MOS of 80% also shows this stock has some significant upside potential.
Meaning: Cybersecurity, CDN, and Edge Computing are all in demand and aren’t going away. All companies continuously increase their digital footprint which means Akamai’s solutions will be required for protection and scale.
Moat: The moat is worth paying attention to as there are a lot of strong competitors in the market. Cloudflare and Zscaler are two of their closest competitors with Cybersecurity, CND, and Edge Computing but their financials are weak in comparison to Akamai. The three big threats regarding CDN include Amazon (AWS), Google (Google Cloud), and Microsoft (Azure). All three include a CDN product. Although there are a few competitors in this space, the demand for these products will allow these competitors to continue to increase revenue.
Management: Dr. Tom Leighton has served as CEO since 2013. He received his Ph. D in Applied Mathematics from MIT in 1981. For over 30 years he has encouraged students to pursue careers in STEM. He was one of the 18 CEOs invited to the White House in 2017 for the launch of the American Technology Council to develop solutions to modernize and secure the US government’s IT systems. From 2003 to 2005 he served on the President’s IT Advisory Committee. Dr. Leighton holds more than 50 patents involving content delivery, internet protocols, algorithms for networks, cryptography, and digital rights management. During his time as CEO, Akamai’s revenue has more than doubled. Dr. Leighton hasn’t lead other large public companies in the past which isn’t a bad thing. He’s been with Akamai since the beginning which shows he has over 20 years of experience in the cybersecurity industry. It’s also important to note the share price has continuously increased since 2013, when he took over as CEO. I do want to point out that he seems to be very approachable and easy to work with. He’s highly engaged with students, especially students from MIT, and the company’s Glassdoor rating has a score 4.5 which is really good. Overall, I think Dr. Leighton is a great fit for CEO.
Akamai Financials
Now let’s take a look at the financials to get us closer to determining if Akamai’s stock is a good buy. A good value investor should be able to read the income statement, cash flow statement, and balance sheet and within 60 seconds have a pretty good idea of how the business is performing.
Revenue (Found on the Income Statement)
- 2018: $2.7B
- 2019: $2.8B
- 2020: $3.1B
- 2021: $3.4B
- Revenue has consistently increased year-over-year which is a great sign.
Net Income (Found on the Income Statement)
- 2018: $298M
- 2019: $478M
- 2020: $557M
- 2021: $651M
- Net Income has consistently increased. This is a great sign.
EPS (Found on the Income Statement)
- 2018: 1.78
- 2019: 2.94
- 2020: 3.43
- 2021: 4.01
- EPS has also consistently increased. This is a great sign.
Free Cash Flow (Found on the Cash Flow Statement)
- 2018: $602M
- 2019: $496M
- 2020: $483M
- 2021: $859M
- Free Cash Flow has significantly increased in 2021.
Total Assets (Found on the Balance Sheet)
- 2018: $5.4B
- 2019: $7B
- 2020: $7.7B
- 2021: $8.1B
- Total Assets have consistently increased. Another great sign.
Total Liabilities (Found on the Balance Sheet)
- 2018: $2.2B
- 2019: $3.3B
- 2020: $3.5B
- 2021: $3.6B
- The Total Liabilities have consistently increased. Ideally, we want to see liabilities decrease.
Total Debt (Found on the Balance Sheet)
- 2018: $1.5B
- 2019: $1.9B
- 2020: $2B
- 2021: $2.8B
- The debt has increased which is most likely related to the increase in payroll.
Total Equity (Found on the Balance Sheet)
- 2018: $3.1B
- 2019: $3.6B
- 2020: $4.2B
- 2021: $4.5B
- The Total Equity has increased which is a great sign.
Is Akamai stock a good buy?
The 4 M’s on this business look good. Regarding the MOS, a 16/20 shows the overall financials are strong and the MOS of 80% shows this stock has a lot of upside potential. Regarding the Meaning, we know that cybersecurity, CND, and edge computing will all be required over the next 10 years. Akamai’s business model is in the right place at the right time. Regarding the Moat, there are a lot of competitors in this space, especially the top players including Amazon, Google, and Microsoft. The market demand is high so all companies can thrive but if more competitors enter this space, they may take market share away from Akamai. Regarding Management, Dr. Tom Leighton is doing a great job as CEO. The share price has consistently increased since he took over as CEO.
Overall, if you’re looking for a strong cybersecurity stock that is poised to grow over the coming years, Akamai is worth a look.
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The Summary, Score, and MOS of this stock may have changed since the posting of this review. Please login to Tykr to see up-to-date information.
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