CAMBRIDGE, Mass. - Akamai Technologies, Inc. (NASDAQ: NASDAQ:AKAM), known for its cybersecurity and cloud computing services, has received approval from the U.S. Bankruptcy Court for the District of Delaware to acquire select assets from Edgio. The court's decision comes after Akamai's successful bid at Edgio's bankruptcy auction held on November 13, 2024.
The assets include certain customer contracts from Edgio's content delivery and security businesses, as well as non-exclusive license rights to Edgio's patent portfolio. Notably, the acquisition does not encompass Edgio personnel, technology, or assets related to its network.
Upon closure of the transaction, Akamai will welcome several hundred new customers, providing them with a transition to Akamai's services before Edgio ceases its content delivery network operations. These customers will also gain immediate access to Akamai's full suite of cybersecurity and cloud computing offerings.
Adam Karon, COO and General Manager of Akamai's Cloud Technology Group, emphasized the company's capacity and experience in facilitating customer transitions, aiming to ensure a secure and smooth process.
Financially, Akamai expects the transaction to contribute an additional $9-$11 million in revenue for Q4 2024, with transition service costs estimated at $15-$17 million for the same period. The impact on non-GAAP net income per diluted share for Q4 is projected to be dilutive by about $0.03-$0.05, inclusive of transition costs.
Looking ahead to 2025, Akamai forecasts the deal will add approximately $80-$100 million in revenue, with $25-$30 million in transition service costs, and predicts it will be accretive to non-GAAP net income per diluted share by $0.15-$0.20.
Ed McGowan, Akamai's CFO, expressed confidence that integrating these customers onto Akamai's platform will enhance profitability and growth opportunities, including the potential for cross-selling and up-selling advanced solutions.
The transaction is slated to close in early December 2024, subject to standard closing conditions. This report is based on a press release statement from Akamai Technologies, Inc.
In other recent news, Akamai Technologies has emerged as the winning bidder for specific assets of Edgio, a company that recently filed for Chapter 11 bankruptcy. The assets include customer contracts from Edgio's security and content delivery businesses and non-exclusive license rights to its patent portfolio. The acquisition, pending court approval, is expected to close in the fourth quarter of 2024, enhancing Akamai's security solutions and content delivery networks.
Furthermore, Akamai has reported its first billion-dollar quarter, with total revenue reaching $1.005 billion, a 4% increase year-over-year. Security revenue rose to $519 million, a 14% increase, surpassing a $2 billion annual run rate, while compute revenue grew by 28% to $167 million. However, the company projects a weaker outlook for the fourth quarter due to ongoing challenges in its delivery business.
The financial services firm, Baird, has adjusted its stock price target for Akamai, maintaining an Outperform rating. Baird highlighted Akamai's security and compute segments, which are expected to continue experiencing double-digit growth. Akamai's recent developments also include a workforce reduction of 2.5% as the company transitions its focus towards cybersecurity and cloud computing solutions.
The company's Q4 revenue projections are expected to be between $995 million and $1.020 billion, with full-year forecasts indicating 4% to 5% growth. The security sector is expected to grow by 15% to 17% in constant currency for the year 2024. Despite a projected 20-21% year-over-year decline in delivery segment revenue, Akamai has secured major contracts due to strong customer interest in security solutions and is driving growth in new product areas through strategic shifts in investments.
InvestingPro Insights
Akamai Technologies' recent acquisition of Edgio assets aligns with its growth strategy, as reflected in the company's financial metrics and market performance. According to InvestingPro data, Akamai's market capitalization stands at $13.98 billion, underlining its significant presence in the cybersecurity and cloud computing sector.
The company's revenue growth of 5.92% over the last twelve months, coupled with a strong gross profit margin of 59.68%, indicates a solid financial foundation to support this strategic acquisition. This expansion move comes at a time when Akamai's stock has shown a significant return of 8.33% over the last week, suggesting positive market sentiment towards the company's growth initiatives.
An InvestingPro Tip highlights that management has been aggressively buying back shares, which could signal confidence in the company's future prospects and potentially support shareholder value as Akamai integrates the newly acquired assets.
Another relevant InvestingPro Tip notes that Akamai's valuation implies a strong free cash flow yield. This financial strength could be crucial in funding the transition costs associated with the Edgio asset acquisition and supporting future growth initiatives.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips that could provide further insights into Akamai's financial health and market position.
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