Akamai Technologies, Inc. AKAM recently announced plans to offer $1 billion in aggregate principal amount of its convertible unsecured senior notes due to mature on Sep 1, 2027.
The company will also provide an option to initial buyers to procure up to an additional $150 million of senior notes. Consequently, Akamai will be raising $1.15 billion in total with the senior note offerings.
We believe that these notes will provide financial flexibility to the company and fuel long-term growth.
Coming to the price performance, shares of Akamai have returned 46.1% year to date, outperforming industry’s growth of 0.6%.
Into the Headlines
Akamai will disclose interest rate, conversion rate and other financial terms after determining the pricing of the offering.
However, the company has stated that the interest payment will be semi-annual. Notably, interest will be paid in arrears as on Mar 1 and Sep 1 of every year, with commencement of interest payments on Mar 1, 2020.
The offering is subject to customary closing conditions. The notes will be privately offered to institutional buyers qualifying under Rule 144A of the Securities Act of 1933, as amended.
Morgan Stanley, BofA Merrill Lynch and J.P. Morgan are acting as “joint book-running managers.”
Akamai aims to utilize the net proceeds of approximately $50 million from the senior notes offering to repurchase shares, in accordance with pricing. The company also intends to fund the cost related to the convertible note hedge transactions.
Meanwhile, the remaining of the net proceeds is expected to be used to finance general corporate purposes, working capital and business expansion initiatives.
Brief on Akamai’s Cash Position
As of Jun 30, 2019, Akamai’s cash and cash equivalents (and total marketable securities) were $1.33 billion up from $1.22 billion reported at the end of the previous quarter.
The company generated cash flow from operations of $318 million, up from $161 million in the previous quarter.
Free cash flow came in at $184.6 million, compared with $18.4 million reported in the previous quarter.
In second-quarter 2019, Akamai repurchased around 1.1 million shares for $81 million. Further, the company had 163 million shares outstanding as of Jun 30, 2019.
We believe that the company has a strong balance sheet, which will help it in capitalizing on investment opportunities and pursuing strategic acquisitions, further improving growth prospects. Moreover, the senior notes offering will lower the company’s cost of capital, consequently strengthening balance sheet and supporting growth.
Akamai is benefiting from robust performance of cloud security business, and growth in Media & Carrier Division. Solid demand for Kona Site Defender, Prolexic Solutions, new Bot Manager Premier, and Nominum Services are key catalysts.
However, increasing bandwidth costs and stiff competition in content delivery network (CDN) market are major concerns.
Zacks Rank & Stocks to Consider
Currently, Akamai carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader technology sector worth considering are HubSpot HUBS, Chegg CHGG and Anixter International AXE. All the three stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for HubSpot, Chegg and Anixter is currently pegged at 30%, 49.4%, 30% and 8%, respectively.
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