Akamai Technologies (AKAM - Analyst Report) recently announced that it has completed the acquisition of the privately-held cloud based security-solutions provider Prolexic Technologies. The acquisition is expected to boost Akamai’s cyber security offerings.
However, the acquisition is likely to negatively impact Akamai’s first quarter 2014 non-GAAP earnings by a penny. On the other hand, it is expected to boost organic revenue growth in the range of $7-$8 million.
Prolexic develops cyber security software that protects data centers and enterprise applications from distributed denial of service (DDoS) attacks. DDoS is the most common form of cyber attack that uses a large number of computers to bring down the targeted network with huge traffic.
DDoS attacks can come at the network level or at the application level. According to an October report from Arbor Networks, DDoS attacks exceeding 20 Gbps have so far quadrupled in 2013 compared with the previous year.
Hackers have targeted large U.S. banks including Bank of America (BAC - Analyst Report) and J.P. Morgan Chase (JPM - Analyst Report) as well as media companies such as The New York Times and Washington Post.
Akamai owns more than 141,000 servers that help carry Internet traffic for many big-name clients, including Facebook (FB - Analyst Report) and Apple. Akamai’s present security solutions including Kona site defender are focused on the application layer. The addition of Prolexic expands the company’s product offerings for non-web applications as well as enterprise data centers.
As per research conducted by ReportsnReports.com, global cyber security spending is expected to reach $165.0 million by 2023.
We believe that this significant growth in spending bodes well for Akamai. The expanding product portfolio will help the company to grab significant cyber security market share in the long run. Moreover, Prolexic’s recurring revenue model will boost its top line, going forward.
However, in order to differentiate its products, Akamai is significantly investing in research & development and is also expanding its sales force through new recruits. This additional spending coupled with the dilutive nature of the acquisition will hurt profitability in 2014.
Currently, Akamai has a Zacks Rank #1 (Strong Buy).