Akamai Technologies, Inc. (NASDAQ: AKAM) has received a downgrade amid the excitement around new streaming services.
KeyBanc’s Brandon Nispel downgrades from Overweight to Sector Weight with no assigned price target.
Akamai’s valuation reflects strong sentiment compared to historical levels, which Nispel believes is a function of excitement in CDN from OTT video services from Walt Disney Co (NYSE: DIS), AT&T Inc. (NYSE: T), Apple Inc. (NASDAQ: AAPL) and Comcast Corporation (NASDAQ: CMCSA) launching in 2019 and 2020.
“Forecasting the benefit to CDNs is near impossible, but we believe AKAM’s valuation reflects accelerating demand from these new service launches as well as the benefit to CDN in 2020 from the Olympics and the 2020 presidential election,” said Nispel.
With consensus CDN revenue growth at 1.9% year-over-year in 2019, the analyst believes these events are at least partially reflected in estimates.
Nispel says the path for Akamai to beat its guidance of 30% non-GAAP operating margin in 2020 is by maintaining its operational focus and keeping headcount relatively flat, but the company recently issued $1.15 billion in convertible notes despite being already in a net cash position.
The analyst also believes a larger security acquisition could be in the workings, a move he says would impair the margin expansion opportunity.
“M&A for Akamai makes us nervous, and we would prefer to avoid the risk,” he said.
KeyBanc believes the key aspects of its upgrade on Akamai on January 8, 2019 have played out and sees risk if the new streaming services don’t develop as expected.
Akamai Technologies shares are down 1.47%, trading at $89.60.
Guggenheim, KeyBanc Remain Akamai Bulls After Q1 Beat
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Latest Ratings for AKAM
|Sep 2019||Downgrades||Overweight||Sector Weight|
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