Deutsche Bank On Akamai Technologies: Long-Term Model Suggests 50% Upside To Current Levels

Deutsche Bank reiterated its Buy rating on Akamai Technologies, Inc. (NASDAQ: AKAM), saying its 2017+ sum-of-the-parts valuation suggests about 50 percent upside to current levels.

The brokerage's 50 percent upside to current levels estimate is based on:

• 1. "Potential for AKAM's Media business to inflect to 'mid teens growth' in FY17/18, based on +30 percent Y/Y CAGR for Internet Video (Cisco VNI);
• 2. "Media is the highest EBIDTA margin contributor versus a 'loss leader,' even with low-teens Y/Y Video traffic delivery price declines;
• 3. "Security is an optionality, with inorganic growth in Cloud based Security Services as a key FY17/18 upside driver, in addition to Over the Top Video."

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Analyst Vijay Bhagavath noted that fears of risks to Akamai's media business from increasing competition from Web 2.0s such as Amazon.com, Inc.(NASDAQ: AMZN) and Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL) are overstated.

According to the company data, Akamai carries about 35 percent of the world's Internet traffic and about 55 percent market share in video CDN (content delivery network).

Bhagavath says Akamai has more than 3,500 media customers at an ASP of about $350,000 per customer, and delivers video through its platform for the "long tail" of media broadcasters and aggregators, for example: HBO, NBC, CBS, NFL, HULU, ESPN, and the BBC.

"Our overweight thesis argues that the 'long tail' of media customers are likely to increasingly utilize AKAM's platform for Over the Top Video and for several 'value add' features such as Targeted Advertising, Rights Management, and AKAM's ability to support a broad set of media formats and streaming rates, over the next few years," Bhagavath wrote in a note.

The near-term catalysts for Akamai include the Summer Olympics in the third quarter and the U.S. elections in the fourth quarter.

According to TipRanks, Bhagavath has a success rate of 33 percent with an average return per recommendation of -10.5 percent. The analyst is ranked 3,677 out of 3,910 analysts.

At the time of writing, shares of Akamai were up 2.18 percent at $51.59. Bhagavath has a price target of $72 on the stock.