On Aug 12, Zacks Investment Research downgraded Akamai Technologies Inc. (AKAM - Free Report) to a Zacks Rank #5 (Strong Sell). The downgrade can be attributed to negative estimate revisions witnessed over the last 30 days following mixed second- quarter 2017 results.
In the last reported quarter, adjusted earnings of 43 cents per share missed the Zacks Consensus Estimate by a penny. However, revenues of $609 million beat the Zacks Consensus Estimate of $604 million and increased almost 6% from the year-ago quarter (up 7% adjusted for foreign exchange) but declined 1% sequentially.
The company witnessed 10 downward revisions for the current quarter as well as full year 2017 over the last 30 days, compared with just one upward revision. This trend has caused the Zacks Consensus Estimate for the third quarter and full year 2017 to decline 6.7% and 3.6% to 42 cents and $1.86, respectively.
Notably, Akamai has lost 30.5% of its value year to date against 19.6% growth of its industry.
Akamai’s underperformance can be attributed to headwinds related to do-it-yourself (DIY) initiatives by large Internet companies such as Amazon (AMZN - Free Report) , Apple (AAPL - Free Report) , Facebook (FB - Free Report) , Google, Microsoft, and Netflix, which are hurting its media business. Notably, revenues for media business decreased 2.1% year over year (down 1% when adjusted for foreign exchange) and 3.3% sequentially to $276.1 million.
Intensifying competition continues to weaken Akamai’s market share. Loss of large customers in the content delivery network (CDN) space is expected to have a negative impact on the company’s top line in the near term.
Although market research firm Gartner puts Akamai in the “Leaders” quadrant in its latest “Magic Quadrant for Web Application Firewalls” report, we believe that the company’s aggressive pricing policy, especially in case of video content, to attract more customers and traffic to its network will hurt profitability going ahead.
Moreover, newly launched products like Bot Manager, Image Manager, Enterprise Application Access (EAA) and the Enterprise Threat Protector (ETP) will take some more time to contribute to its growth.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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