On Monday (NASDAQ:MNDY), Baird adjusted its stock price target for Akamai Technologies (NASDAQ:AKAM), a global leader in content delivery network services, to $115 from the previous $120 while maintaining an Outperform rating on the stock.
The revision follows Akamai's third-quarter earnings report, which was released on Sunday and met revenue expectations, excluding a one-time benefit. However, the company forecasted a weaker outlook for the fourth quarter, primarily due to ongoing challenges in its delivery business.
The Baird analyst highlighted the company's security and compute segments, which continue to experience double-digit growth. This momentum is expected to carry into 2025, despite the deceleration in the security business. The strong performance in these areas is seen as a positive counterbalance to the softer delivery segment.
Akamai's valuation is still considered reasonable by Baird, in light of the robust growth in security and compute services. However, the firm also recognizes that the persistent difficulties in the delivery aspect of Akamai's business could weigh on the stock in the near term.
The company's financial health and market position remain solid, with security and compute services providing a stable foundation for growth. As Akamai navigates the delivery headwinds, the market will be watching closely to see how these challenges impact the company's performance in the upcoming quarter and beyond.
In other recent news, Akamai Technologies reported a significant milestone, marking its first billion-dollar quarter with total revenue reaching $1.005 billion, a 4% year-over-year increase. This achievement was underscored by security revenue climbing to $519 million, a 14% increase, surpassing a $2 billion annual run rate, and compute revenue growing by 28% to $167 million.
Despite a workforce reduction of 2.5%, the company is transitioning focus towards cybersecurity and cloud computing solutions.
These recent developments also include Akamai's Q4 revenue projections, which are expected to be between $995 million and $1.020 billion, with full-year forecasts indicating 4% to 5% growth. The company's security sector is expected to grow by 15% to 17% in constant currency for the year 2024.
While the company faces challenges such as a projected 20-21% year-over-year decline in delivery segment revenue, Akamai is capitalizing on market consolidations and has secured major contracts due to strong customer interest in security solutions. The firm is also focused on driving growth in new product areas through strategic shifts in go-to-market investments.
InvestingPro Insights
Recent InvestingPro data and tips provide additional context to Akamai Technologies' (NASDAQ:AKAM) current market position and financial health. The company's market capitalization stands at $13.49 billion, with a P/E ratio of 26.44, reflecting its position in the tech sector.
An InvestingPro Tip notes that management has been aggressively buying back shares, which could signal confidence in the company's long-term prospects despite the challenges in the delivery business mentioned in the article. This aligns with the Baird analyst's view on Akamai's reasonable valuation and potential for growth in security and compute services.
Another relevant InvestingPro Tip indicates that Akamai's stock is trading near its 52-week low, with a 1-year price total return of -19.32%. This data point correlates with the article's mention of potential near-term pressure on the stock due to delivery business difficulties.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Akamai Technologies, providing a deeper understanding of the company's financial position and market trends.
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