By Sam Boughedda
Piper Sandler upgraded Akamai Technologies (NASDAQ:AKAM) to Overweight from Neutral, maintaining a $93 per share price target on the stock in a note to clients Tuesday.
The analysts there explained that while the call may not be popular "as Akamai still has multiple issues to resolve," they believe the pull-back in shares presents an opportunity to own this contrarian name into earnings and over the near term.
Outlining the firm's thesis, they said:
- Investor push-back to management will likely force a pull-back in capex investments and margin re-focus.
- Piper Sandler's RPO analysis points to potential revenue upside.
- Linode's relatively unnoticed 20% price increase should force estimates higher.
- CDN trends "aren't that bad" for 1Q23, while security 1Q23E estimates are conservative.
- And a re-focused margin strategy is expected to lead to multiple expansion, presenting a favorable risk-reward from current levels.
"The magnitude of the Linode investments planned for 2023 without proof-points, margin guide miss, and a slowdown in "Pivot 1.0" (CDN to Security) has led to pushback by shareholders to management for this investment amount," wrote the analysts. "While some is needed for internal use-cases, we expect management will shift towards a more gradual investment cycle to appease shareholders, without which Akamai could face further shareholder pressure."
They added that RPO accelerated in 2022, mostly on the long-term side, and with most contracts at two years or less in duration, it "should help the setups for 2H23/2024."
"In analyzing cRPO vs. revenue, it can be inferred that our above-Street estimates may be conservative, as our implied amortization of cRPO to revenue is multiple points below the ~43% five-year average," stated the analysts.