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Bear of the Day: Akamai Technologies (AKAM)

Akamai Technologies (AKAM) is a Zacks Rank #5 (Strong Sell) that provides cloud computing, security, and content delivery services globally. They offer solutions to protect websites, applications, and users from cyberattacks and online threats while improving performance.

About the Company

Akamai was founded in 1998, employs 10,000, and is headquartered in Cambridge, MA.

In addition to the services listed in the intro, Akamai provides services for web and mobile performance, media delivery (including video streaming), game and software delivery, and cloud computing. They also offer support to help customers integrate and manage their services effectively.

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AKAM is valued at $14 billion and has a Forward PE of 15. The stock holds Zacks Style Scores of “A” in Growth, but “D” in Value and Momentum.

Q1 Earnings

Akamai's Q1 earnings report showed slightly better-than-expected earnings per share at $1.64 compared to estimates of $1.61, while revenue came in slightly below expectations at $987 million versus an estimated $989 million.

The company issued weak guidance for Q2, attributing it to a large social media customer optimizing costs and slowing traffic growth across the industry.

The guidance for Q2 included EPS of $1.51-1.56 versus the $1.62 expected and revenue of $967-986 million versus the $998M expected.

Additionally, they cut their FY24 revenue forecast to $3.95-4.02 billion from an estimated $4.09 billion.

The stock sold off over 10% after the report as analysts took estimates and price targets lower.

Earnings Estimates

Over the last 30 days, earnings estimates for the current quarter have fallen from $1.62 to $1.55, or 4%.

For the next quarter, estimates have fallen 10%, going from $1.73 to $1.56 over that same time frame.

For the current year, estimates have dropped from $6.76 to $6.32, or 7% over the last 30 days.

Looking at next year, estimates have the same trend lower. Over the last 30 days, numbers have fallen to $6.75 from $7.36, a move lower of 9%.

Price targets have come down along with the estimates:

-Susquehanna maintained a Net Positive with a price target of $135, down from $150.

-Citigroup has a Neutral rating on AKAM and has set a price target of $110, reduced from $117.

-RBC maintained a Sector Perform rating on AKAM, with a reduced-price target of $92 from $115.

Technical Take

The stock hit all-time highs in February but Q4 earnings took AKAM from $129 to $107. After some sideways action, the stock broke the 200-day moving average and clung to the $100 level.

After Q1 EPS, the stock is now trading below all moving averages and it is likely facing further downside until it can provide a quarter with positive earnings momentum.

For those interested in the name, they should have patience and wait for the $75-80 area. This levle has shown support in the past and would be a good spot for a relief bounce.

In Summary

Akamai has posted back-to-back EPS disappointments and the stock is now down 25% since the February highs. Investors should stay away for now and wait for the Q2 results or buyable support levels to come.

For those interested in the space, a better option might be Alphabet (GOOG). The stock is a Zacks Rank #1 (Strong Buy) that has proved immune to the problems that Akamai has seen.   

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