On Wednesday, Piper Sandler confirmed its Overweight rating on shares of Akamai Technologies (NASDAQ: NASDAQ:AKAM), with a consistent price target of $112.00. The firm's endorsement follows Akamai's recent announcement that the US Bankruptcy Court approved its $125 million bid to acquire contract assets from Edgio. The transaction is anticipated to finalize in early December.
Akamai's successful bid, which is approximately 1.3 times the revenue, is expected to contribute roughly $10 million in the fourth quarter of 2024 and about $90 million in the fiscal year 2025. The addition to earnings per share (EPS) is forecasted to be between $0.15 and $0.20, which surrounds the approximately $0.16 estimate provided by Piper Sandler last week.
The acquisition is seen as a strategic move for Akamai, potentially consolidating its position in the media-CDN market. The deal is also likely to benefit Akamai's competitors, such as Fastly (NYSE:FSLY), by potentially shifting market dynamics. Despite the positive aspects of the acquisition, Piper Sandler noted that it may delay Akamai's transition to areas of faster growth and higher value, such as Security & Compute.
Piper Sandler plans to revisit its estimates for Akamai Technologies once the acquisition is officially complete. Nevertheless, the firm maintains that the current share price offers value, a sentiment bolstered by the expected accretion to EPS and free cash flow (FCF) that the Edgio deal is predicted to bring.
In other recent news, Akamai Technologies has emerged as the winning bidder for select assets from Edgio, a company that recently filed for bankruptcy. The acquisition, expected to close in the fourth quarter of 2024, includes customer contracts and non-exclusive license rights to Edgio's patent portfolio.
Financially, this acquisition is projected to contribute an additional $9-$11 million in revenue for Q4 2024, with transition service costs estimated at $15-$17 million.
Akamai also recently reported its first billion-dollar quarter, with total revenue reaching $1.005 billion, a 4% increase year-over-year. Security revenue rose to $519 million, a 14% increase, while compute revenue grew by 28% to $167 million. The company's Q4 revenue projections are expected to be between $995 million and $1.020 billion, with full-year forecasts indicating 4% to 5% growth.
In addition, Baird, the financial services firm, adjusted its stock price target for Akamai, maintaining an Outperform rating. Baird highlighted Akamai's security and compute segments, which are expected to continue experiencing double-digit growth. Despite these recent developments, Akamai has also announced a workforce reduction of 2.5% as the company transitions its focus towards cybersecurity and cloud computing solutions.
InvestingPro Insights
Akamai Technologies' recent acquisition of Edgio's contract assets aligns with several key financial metrics and insights from InvestingPro. The company's market cap stands at $13.99 billion, reflecting its significant presence in the content delivery network (CDN) and cybersecurity markets.
InvestingPro data shows that Akamai has been profitable over the last twelve months, with a P/E ratio of 26.82. This valuation is particularly interesting in light of the company's revenue growth of 5.92% over the last twelve months, reaching $3.97 billion. The acquisition of Edgio's assets is expected to further boost this revenue and contribute to earnings growth.
An InvestingPro Tip highlights that management has been aggressively buying back shares, which could indicate confidence in the company's future prospects and potentially support the stock price. This strategy aligns with the company's focus on creating shareholder value, even as it pursues strategic acquisitions like the Edgio deal.
Another relevant InvestingPro Tip suggests that Akamai's valuation implies a strong free cash flow yield. This could be particularly beneficial as the company integrates the newly acquired assets and potentially realizes the projected $0.15 to $0.20 addition to EPS.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips that could provide further insights into Akamai's financial health and growth prospects.
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