A Member of Pat McKeough’s Inner Circle recently asked for his advice on a content delivery company that provides video streaming and business process services to major media companies and other high-traffic content providers.
Pat likes the company’s history of rising revenue and earnings as well as its market-leading technology. However, he notes the company does business in a highly competitive market against giants Amazon and Google.
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AKAMAI TECHNOLOGIES INC. (Symbol AKAM on Nasdaq; www.akamai.com) provides services for the delivery of content (video streaming) and business processes over the Internet. The company operates the world’s largest and most widely used on-demand distributed computing platform, with over 325,000 servers and 1,435 networks in 135 countries. Its customer base includes 56% of the Fortune 500.
Between 2017 and 2021, Akamai’s total revenue increased 38.3%, from $2.50 billion to $3.46 billion. Meanwhile, between 2017 and 2021, earnings, excluding one-time items, jumped 198.5%, from $218.3 million, or $1.26 a share, to $651.6 billion, or $3.93.
In March 2022, Akamai completed the $900-million acquisition of Philadelphia-based Linode Limited Liability Company.
Linode is an infrastructure-as-a-service (IaaS) platform provider. The company provides a cloud computing platform to clients in 185 countries worldwide. There are currently about 150,000 active users on its platform. Linode has annual revenue of about $100 million.
That firm provides services similar to big rivals like Amazon.com Inc.’s AWS subsidiary and Google Cloud Services. Akamai now plans to combine Linode’s developer-friendly cloud computing capabilities with its own platform and security services.
Inner Circle: Earnings drop but an expansion plan shows promise
In late September 2022, Akamai revealed some of its expansion plans for Linode.
Akamai plans to double Linode’s global infrastructure footprint by putting its full product line into more than 12 datacentres across North America, Asia/Pacific, and Latin America. It expects to have this expansion completed by the end of 2023.
For the quarter ended June 30, 2022, Akamai’s revenue was $903.3 million, up 5.9% from $852.8 million a year earlier. Excluding one-time items, the company earned $216.4 million. That was down 7.0% from $232.8 million. Due to fewer shares outstanding, per-share earnings fell 4.9%, to $1.35 from $1.42.
Akamai operates in a highly competitive market, but its leading technology—including Linode’s offerings—should see it add more and more blue-chip customers.
Recommendation in Pat’s Inner Circle: Akamai Technologies Inc. is a hold.