Many investors have heard the name Akamai Technologies, Inc. (NASDAQ:AKAM), but not all investors understand what the company does. Essentially, Akamai Technologies, Inc. (NASDAQ:AKAM) makes the Internet faster and more secure, and delivers approximately 20% of web content around the world. But while the company’s future prospects look good, strong headwinds could still hinder Akamai Technologies, Inc. (NASDAQ:AKAM)’s stock performance.
Akamai Technologies, Inc. (NASDAQ:AKAM) has a lot going for it at the moment. Demand for security and content delivery speed are high.
Security: Hackers have increased their attacks on a variety of institutions including major U.S. banks and government websites.
Content Delivery Speed: Growing popularity of smartphones and tablets.
Akamai Technologies, Inc. (NASDAQ:AKAM) is currently trading at 19 times forward earnings. This might seem slightly high, but Akamai has the potential to grow into this expectation. It should also be noted that peers are a lot more expensive. For example, Rackspace Hosting, Inc. (NYSE:RAX) is trading at 41 times forward earnings, and Level 3 Communications, Inc. (NYSE:LVLT) is trading at 36 times forward earnings.
Akamai sports a more appealing profit margin than peers at 16.33%.Akamai’s effective cost management has played a major role here. Rackspace Hosting, Inc. (NYSE:RAX) has a profit margin of 7.99% (not bad), and Level 3 Communications, Inc. (NYSE:LVLT) has a profit margin of -5.69% (not good).
Debt management also plays a role in these comparisons. Below are the debt-to-equity ratios for each company:
- Akamai: 0.00 (ideal)
- Rackspace Hosting, Inc. (NYSE:RAX): 0.12 (impressive)
- Level 3 Communications, Inc. (NYSE:LVLT): 7.75 (frighteningly high)
Akamai has $513.01 million in cash and short-term equivalents, and it has no debt. This will make the company more resilient than most peers during difficult times. A strong cash position allows for many strategic options. If the stock falters, Akamai has enough cash to increase the capital it distributes to shareholders. This has the potential to buoy the stock price.
Other important numbers include a first-quarter year over year increase of 15.20% in revenue, and an increase of 65.40% in earnings. An increase in Internet traffic played a big role in these numbers.
Have you happened to notice fewer people at the mall? That’s because they’re shopping online. If they’re not shopping online, then they might be communicating on a social media site. If not, then perhaps they’re downloading software, playing an online game, or watching an online video. Any of these scenarios is good for Akamai. And if someone is using a mobile device, it’s still likely to benefit Akamai.