Akamai Technologies (AKAM, Financial) is an American content delivery network (CDN) and cloud services provider headquartered in Cambridge, Massachusetts. The company was founded in 1998 by Tom Leighton, Daniel Lewin and Jonathan Seelig, and it is now one of the largest CDN providers in the world.
Akamai's services help businesses and organizations to deliver their content and applications faster, more securely and more reliably over the internet. Akamai operates a global network of servers and data centers that help to speed up the delivery of content by caching it closer to the end user. The company's services include web and mobile performance, cloud security and media delivery solutions.
Some of Akamai's notable customers include Apple (AAPL, Financial), IBM (IBM, Financial) and the U.S. Department of Defense. Akamai has also been recognized as a leader in the Gartner Magic Quadrant for Web Application Firewalls and Content Delivery Networks.
The CDN and cloud services market has been experiencing significant growth in recent years, driven by the increasing demand for faster, more secure and reliable delivery of digital content and applications over the internet. According to a report by Markets and Markets, the global CDN market size is expected to grow from $12.4 billion in 2020 to $27.9 billion by 2025, for a compound annual growth rate (CAGR) of 17.5%.
Akamai's growth outlook
Akamai Technologies is one of the leading players in the CDN and cloud services market and has been experiencing steady growth over the years as a result. The company's revenue has been increasing consistently, with its 2022 annual revenue reaching $3.62 billion, up from $3.46 billion in 2021. Akamai's net income has been growing in the past three out of four years. In 2022, net income did fall 20% to $523.67 million, but the three-year growth trend is still positive.
Akamai has been expanding its offerings beyond its traditional CDN services, investing in cloud security, enterprise security and edge computing capabilities. In addition, Akamai has been focusing on expanding its presence in key growth markets such as Asia-Pacific and Latin America.
Overall, the CDN and cloud services market are expected to continue to grow, and Akamai Technologies is well-positioned to benefit from this growth given its established position as a leading player.
Cybersecurity growth is robust
The cybersecurity industry has been experiencing significant growth in recent years, driven by the increasing frequency and sophistication of cyber attacks, as well as the growing importance of data privacy and protection. According to a report by Markets and Markets, the global cybersecurity market size is expected to grow from $217.6 billion in 2020 to $345.4 billion by 2026 for a CAGR of 8.2%.
One of the key drivers of growth in the cybersecurity industry has been the increasing adoption of digital (especially cloud) technologies by businesses and organizations, which has led to a greater need for cybersecurity solutions to protect against cyber threats. In addition, the Covid-19 pandemic has accelerated the adoption of technologies, leading to an increased focus on cybersecurity as more people work remotely and organizations shift their operations online.
As a result, cybersecurity companies have been experiencing robust growth in recent years. As a CDN, Akamai has also found it necessary to get into the cybersecurity business.
A solid balance sheet with tons of free cash flow generation
Akamai Technologies' debt-to-equity ratio for the three months ending Dec. 31, 2022 was 0.52, which seems financially sound. The company has been generating positive free cash flow (FCF) in the past five consecutive years, which is incredibly positive news in terms of valuation. The current price-to-FCF ratio of 15.85 is marginally higher than the price-to-FCF ratio the company had back in 2011. In 2011, the FCF per share was $1.30 for the quarter ending in September, and for the December 2022 quarter, the company reported FCF per share of $5.09. The FCF per share trend has been both positive and rising as of 2011. In other words, this valuation ratio has not risen despite solid FCF growth.
The price-sales ratio of the stock is 3.61, which is again about the same as the price-sales ratio of 3.36 back on Sept. 30, 2011. That's another valuation that has stayed in place despite solid revenue growth.
Akamai has reported what every business in the world dreams about: a consistent and rising sales per share trend. In 2009 ,the slares per share was $4.56 rising to $22.43 by Dec. 31, 2022. For each year in the period between 2009 and 2022, Akamai has been increasing its sales per share, which is remarkable and incredibly positive in terms of financial performance and shareholder value creation.
All in all, Akamai Technologies shines in terms of solid historica growth and potential for future growth as it is set to benefit from growth in the cybersecurity and CDN businesses. While its valuation ratios seem mostly static, that shouldn't matter so much if revenue and earnings continue to grow.
