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Akamai Technologies Inc.
(AKAM-NASDAQ)
Earnings Update- Akamai Reports Q4
SUMMARY
SUMMARY DATA
Risk Level * Average,
Type of Stock Large-Growth
Industry Internet-Servcs
Zacks Industry Rank * 82 out of 267
Current Recommendation
NEUTRAL

Prior Recommendation Outperform
Date of Last Change 12/22/2013

Current Price (02/10/14) $58.01
Target Price $61.00
Akamai reported strong fourth quarter results beating the
Zacks Consensus Estimate on both lines. The company
also provided positive outlook for 2014. We believe strong
demand for cloud infrastructure solutions, security, mobile
products and online video will drive top-line growth, going
forward. Moreover, the company s dominance in the web
application business is expected to be a significant growth
catalyst, going ahead. However, intense competition has
kept pricing under tremendous pressure, which is a
significant headwind, going forward. In order to
differentiate its products, Akamai is significantly investing
in R&D and is also expanding its sales force through new
appointments. This will negatively impact profitability,
going forward. Thus, we remain Neutral and set a price
target of $61.00.
52-Week High $58.01
52-Week Low $33.55
One-Year Return (%) 63.78
Beta 0.34
Average Daily Volume (sh) 2,930,983

Shares Outstanding (mil) 179
Market Capitalization ($mil) $10,382
Short Interest Ratio (days) 7.59
Institutional Ownership (%) 91
Insider Ownership (%) 4

Annual Cash Dividend $0.00
Dividend Yield (%) 0.00

5-Yr. Historical Growth Rates

Sales (%) 15.8
Earnings Per Share (%) 3.4
Dividend (%) N/A

P/E using TTM EPS 36.0
P/E using 2014 Estimate 32.2
P/E using 2015 Estimate 27.2

Zacks Rank *: Short Term
1

3 months outlook
2 - Buy
* Definition / Disclosure on last page

ZACKS CONSENSUS ESTIMATES

Revenue Estimates
(In millions of $)
Q1 Q2 Q3 Q4 Year
(Mar) (Jun) (Sep) (Dec) (Dec)
2012 319 A 331 A 345 A 378 A 1,373 A
2013 368 A 378 A 396 A 436 A 1,578 A
2014 432 E 448 E 465 E 504 E 1,849 E
2015 2,146 E
Earnings Per Share Estimates
(EPS is operating earnings before non-recurring items, but including employee
stock options expenses)
Q1 Q2 Q3 Q4 Year
(Mar) (Jun) (Sep) (Dec) (Dec)
2012

$0.29 A $0.27 A $0.30 A $0.43 A $1.29 A
2013

$0.42 A $0.37 A $0.35 A $0.47 A $1.61 A
2014

$0.41 E $0.42 E $0.45 E $0.52 E $1.80 E
2015

$2.13 E
Projected EPS Growth - Next 5 Years % 14.1

February 10, 2014
Equity Research AKAM | Page 2

RECENT NEWS
Akamai reported fourth-quarter 2013 earnings of $0.55 per share, which increased 10.0% on both year-
over-year and quarter-over-quarter basis. Earnings were above the higher-end of management s guided
range of $0.49 to $0.53 per share.
Akamai provided a better-than-expected outlook for the first quarter of 2014. According to Bloomberg, the
company also put to rest investors fears regarding Apple s plan of building its own content delivery
network.
Revenues
Revenues jumped 15.4% year over year and 10.2% quarter over quarter to $436.0 million, well ahead of
the Zacks Consensus Estimate of $422.0 million. Revenues were higher than management s guided
range of $412.0 to $430.0 million.
Excluding Akamai s Advertising Decision Solutions (ADS) business, divested in Jan 2013, revenues
increased 19.6% on a year-over-year basis. The strong growth in revenues was primarily driven by
robust performance of most of the solutions.
Media delivery solutions revenues grew 18.6% year over year and 9.7% sequentially to $207.5 million.
The growth was driven by robust traffic growth.
Performance & security solutions revenues jumped 17.9% year over year and 10.5% on a sequential
basis to $192.2 million. The strong year-over-year performance was driven by robust demand for website
and application acceleration solutions, as well as security product offerings.
Service & support systems achieved the strongest year-over-year revenue growth in the quarter, up
36.1% to $36.3 million. On a sequential basis, revenues increased 10.6% in the reported quarter.
Region-wise, revenues from North America (71% of revenues) jumped 15.0% year over year and 9.0%
sequentially. International revenues (29.0% of revenues) jumped 17.0% on a year-over-year basis and
13.0% on a sequential basis in the quarter. Resellers represented 21.0% of the revenues in the quarter.
Margins
Gross margin (including stock-based compensation but excluding depreciation and amortization
expense) expanded 310 basis points (bps) year over year and 210 bps sequentially to 77.8%. The strong
growth was primarily attributable to improving server network efficiency that continues to pull down costs.
Total operating expenses as a percentage of revenues surged 320 bps on a year-over-year basis but
declined 30 bps sequentially to 37.8%. Total operating expenses include stock-based compensation
expense but exclude amortization of intangible assets, depreciation & amortization, restructuring charges
and acquisition related costs.
The year-over-year rise in expenses was primarily due to higher research & development (R&D), general
& administrative (G&A), and sales & marketing (S&M) expenses, which increased 70 bps, 220 bps and
220 bps, respectively.
Sequentially, the modest decrease in operating expenses was due to lower R&D and G&A expenses,
which declined a respective 20 bps and 30 bps in the quarter. S&M expense increased 170 bps in the
reported quarter.
Equity Research AKAM | Page 3

Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin decreased 180
bps on a year-over-year basis but increased 20 sequentially to 44.0%.
Operating margin contracted 20 bps from the year-ago quarter but increased 240 bps sequentially to
40.0%. The year-over-year decline was due to higher operating expenses, while the sequential
improvement was due to a slight decline in the costs.
Net income margin contracted 90 bps from the year-ago quarter but improved 10 bps from the previous
quarter to 22.9%. Net income excludes stock-based compensation, amortization of capitalized stock-
based compensation, amortization of acquired intangible assets, restructuring charges, acquisition
related costs, gain and other activity related to divestiture and related tax effect.
Including stock-based compensation and amortization of capitalized stock-based compensation but
excluding all other non-recurring items, net income margin was 19.2%, which remained flat on a year-
over-year basis but declined 150 bps on a quarter-over-quarter basis.
Earnings, including stock-based compensation and amortization of capitalized stock-based compensation
but excluding all other non-recurring items were $0.46 per share compared with $0.40 reported in the
year-ago quarter and $0.45 in the previous quarter. Earnings beat the Zacks Consensus Estimate by
$0.03.
Balance Sheet & Cash Flow
Akamai exited the quarter with cash and cash equivalents (including short-term marketable securities) of
$673.9 million compared with $584.3 million in the prior quarter. The company generated cash flow from
operations of $171.7 million in the reported quarter versus $158.1 million in the previous quarter.
Akamai repurchased 1.1 million shares for approximately $48.0 million in the quarter.
Guidance
Akamai expects revenues in the range of $426.0 to $430.0 million for the first quarter of 2014. This
represents 17.0% to 21.0% year-over-year growth, but almost flat on a sequential basis, reflecting
seasonal trends.
Akamai expects gross margin (excluding stock-based compensation and depreciation and amortization)
to remain flat sequentially at 78.0%. Operating expenses are projected to be in the range of $145.0 to
$150.0 million.
Management expects adjusted EBITDA margin of approximately 44.0% for the first quarter. However, the
Prolexic acquisition is expected to negatively impact EBITDA margin. The acquisition is also expected to
be slightly dilutive to non-GAAP earnings, with a negative impact $0.06 to $0.08 in the first 12 months.
Earnings are expected to be between $0.51 and $0.55 per share, including tax charge of $48.0 to $52.0
million. Akamai forecasts capital expenditure to be in the range of $72.0 to $77.0 million for the first
quarter.
Equity Research AKAM | Page 4

VALUATION
Akamai shares are currently trading at 36.0X TTM earnings, a discount to the peer group average of
98.0X but premium to the S&P 500 average of 18.1X. Historically, Akamai shares have shown great
volatility, with P/Es ranging from 12.2X to 48.8X. Therefore, it is currently trading slightly above the mid-
point of its historical range which indicates chance of limited upward movement.
The shares are trading at 32.2X our forward earnings estimates for 2014, a discount to the peer group
average of 47.8X. This is a discount of 32.6%, lower than the average discount of 61.4% historically,
which indicates chance of a downward movement.
However, we note that Akamai s strong fundamentals, robust growth opportunity in the core business as
well as security segment and aggressive share buyback are the primary positives going forward. Thus,
we remain Neutral and set a target price of $61.00 (33.9X 2014 P/E).
Key Indicators

P/E
F1
P/E
F2
Est. 5-Yr
EPS Gr%
P/CF
(TTM)
P/E
(TTM)
P/E
5-Yr
High
(TTM)
P/E
5-Yr
Low
(TTM)
Akamai Technologies (AKAM) 32.2 27.2 14.1 20.4 36.0 48.8 12.2

Industry Average 47.8 62.1 19.9 23.5 98.0 130.0 30.7
S&P 500 15.3 14.4 10.7 14.7 18.1 27.7 12.0

AOL Inc (AOL) 24.9 20.1 14.6 11.5 27.6 63.8 7.2
Internet Gold Golden Lines Ltd. (IGLD) N/A N/A N/A 0.2 12.1 64.0 8.8
LinkedIn Corp (LNKD) 212.0 95.4 42.7 143.6 616.4 766.4 300.0
Rackspace Hosting, Inc. (RAX) 55.1 39.4 20.5 15.2 59.0 124.8 39.4
TTM is trailing 12 months; F1 is 2014 and F2 is 2015, CF is operating cash flow

P/B
Last
Qtr.
P/B
5-Yr High
P/B
5-Yr Low
ROE
(TTM)
D/E
Last Qtr.
Div Yield
Last Qtr.
EV/EBITDA
(TTM)
Akamai Technologies
(AKAM)
3.3 4.7 1.7 11.7 0.0 0.0 18.0

Industry Average 4.6 4.6 4.6 5.5 0.4 0.2 12.2
S&P 500 4.8 9.8 2.9 25.4 N/A 2.1 N/A
Equity Research AKAM | Page 5

Earnings Surprise and Estimate Revision History

NOTE THIS IS A NEWS-ONLY UPDATE; THE REST OF THIS REPORT HAS NOT BEEN UPDATED YET

Equity Research AKAM | Page 6

OVERVIEW
Headquartered in Cambridge, Mass., Akamai Technologies, Inc. (AKAM) is a global provider of content
delivery network (CDN) and cloud infrastructure services. The company s solutions accelerate and
improve the delivery of content over the Internet, enabling faster response to requests for Web pages,
streaming video & audio, business applications, etc. Its offerings are intended to reduce the impact of
traffic congestion, bandwidth constraints and capacity limitations on customers.
The company s solutions allow its customers to operate their web transactions anywhere anytime with
cost-effective outsourced infrastructure and carry out predictable, scalable and secure e-business at low
costs. These solutions are built on the Akamai EdgePlatform, which is the technological platform for its
business solutions and hosts some of the world s best-known Internet brand names, such as iTunes.
Akamai s platform comprises more than 141,000 servers located in over 1,200 networks around the
world.
Akamai reported revenues of $1.37 billion, up 19% year over year in 2012. The company offers five core
solutions to its customers namely Terra, Aqua, Sola, Kona and Aura. Through these solutions, the
company provides application and cloud performance services (Terra), digital media, software distribution
and storage services (Sola), website optimization services (Aqua), security tools (Kona), network
operator solutions and other Internet-based offerings (Aura).
Akamai earns revenues through five industry verticals namely Media & Entertainment, Commerce,
Enterprise, High Tech and Public Sector. The company markets and sells its services and solutions both
domestically and internationally through direct sales and more than 100 active channel partners,
including AT&T, IBM, Verizon and Telefonica Group.
2012 Revenues By Industry Vertical
42%
22%
14%
17%
5%
Media & Entertainment Commerce
Enterprise High Tech
Public Sector

Resellers accounted for 22.0% of total revenue in 2012. The company derived 72.0% of its revenues
from the U.S., while the remaining 28.0% came from its foreign operations, of which Europe alone
accounted for 17% in 2012.
Equity Research AKAM | Page 7

REASONS TO BUY

Akamai is a leading provider of content delivery network (CDN) services as its platform handles
approximately two trillion web interactions on a daily basis. Its solutions help customers to address
the challenges of bandwidth constraints and Internet traffic and at the same time reduce the need for
additional hardware to manage traffic loads. Software distribution plays an important role in
bolstering the business as the company benefits from rapid growth in Internet-based distribution of
applications, operating system software and online game software. We believe that the strong
growth in demand for online media and entertainment (High Definition video) over the Internet will
drive bandwidth requirements, thereby accelerating demand for the company s solutions going
forward.

We believe that the increasing adoption of cloud computing technologies will be a major growth
driver for Akamai going forward. The company s cloud optimization solutions help organizations
improve performance, increase availability and enhance the security of applications and key web
assets delivered from the data-centers to the end user. Since a large portion of the revenues is
recurring in nature, the company is expected to boost its sales force as well as investment on
developing new products to achieve its long-term annual revenue target of $5.0 billion by 2020.

Cyber security is an area that holds a lot of promise in our view. With the rapid adoption of cloud
computing, security has become a major concern for enterprises. Hackers are using new and
sophisticated techniques to take advantage of the security loopholes of the cloud. Large enterprises
are expected to increase their security budgets to efficiently address security concerns and instill
confidence in cloud computing. The company s cloud-based web security solutions have been well
received by enterprises as reflected through the 273.0% sales growth in 2012. At the end of the first
nine months of 2013, the company had approximately 700 customers using its security solutions.
We believe that the growing demand for Akamai s security solutions will translate into significant
growth opportunities over the long term.

We believe that Akamai is well positioned to gain from the huge growth of mobile data traffic.
According to ABI Research, total mobile data traffic amounted to 13,412 petabytes by the end of
2012; an increase of 69% over 2011. The major growth drivers of this data usage were smartphone
app download and web browsing (51% of total traffic). By 2018, mobile video streaming and
downloading is expected to account for 56% of total traffic. Given this aggressive growth, mobile
networks are likely to face significant congestion and will thus require technological advancements
from content delivery networks. We believe that the company has significant growth opportunities in
the mobile segment based on its strong and innovative product portfolio.

In the past, acquisitions & partnerships have played an important role in Akamai s growth. The
acquisitions of Cotendo, Blaze, Fast Soft and Verivue in 2012 have expanded its customer base,
increased its global presence and extended its product portfolio. Most recently, the company
acquired cyber security software developer Prolexic, which will help it to solidify its footprint in the
distributed denial of service (DDOS) cyber solution market. Moreover, the company s partnerships
with some of the leading firms such as AT&T, Orange, Cisco, IBM, Turk Telecom, Swiss telecom,
and KT are expected to expand its customer base and addressable market going forward.

Akamai s strong balance sheet and cash flow generation ability enables it to pursue any growth
strategy that includes acquisitions and further share repurchase. In Oct 2013, the Board of Directors
authorized a new share repurchase program worth $750.0 million. The company s strong and
relatively stable cash flow and continuing share repurchase activity make the stock quite attractive,
in our view.
Equity Research AKAM | Page 8

REASONS TO SELL

Akamai is facing increasing competition and pricing pressure as new competitors and non-traditional
players such as Amazon, Netflix, Verizon and Comcast enter the market, joining traditional players
like Limelight Network and Packeteer. Although the company has a strong foothold in the market,
with rapidly changing technology, evolving industry standards and frequent introduction of products
and services, competition has become intense, resulting in a decelerating growth rate. Meanwhile, we
do not believe that barriers to entry are significant enough to keep out competition, since the market
is becoming increasingly attractive and Akamai essentially provides a commodity like service.
Moreover, Amazon s entry into the digital audio, video streaming and cloud computing lines of
business is an added risk. We expect the company to continue to face significant competition and
pricing pressure going forward.

The growth in the mobile Internet market has created a period of uncertainty. Mobile traffic growth is
both a result of higher Internet usage as well as the shift of some traffic from wireline to wireless
networks. This shift in data usage could hurt Akamai's wireline CDN business if the company is
unable to quickly adapt to the change. Moreover, we believe that the mobile Internet market is a
relatively new field for the company, where it faces significant competition from wireless service
providers including Verizon. Greater flexibility in managing data traffic could also prompt wireless
service providers to incorporate their own CDN-like technologies, resulting in fresh competition for the
company.

Intense competition has forced the company to lower the price of its CDN services, particularly in
the media segment. In order to capture market share from both larger players and smaller private
CDNs, we expect price cuts to continue in 2014 and beyond, which in turn will hurt margins. Akamai
has traditionally charged a higher premium than its competitors Limelight, EdgeCast (set to be
acquired by Verizon) and Level3 charge for content delivery. This has helped it maintain higher
margins and earn more profits. However, the company is becoming more aggressive in terms of
pricing, especially in case of video content, to attract more customers and traffic to its network. We
believe this aggressive pricing will hurt profitability going forward.

Increasing total bandwidth costs remain a headwind for Akamai. The company believes that
bandwidth costs will continue to increase as a result of expected increase in traffic levels, somewhat
offset by anticipated reductions in bandwidth costs per unit for 2013. Moreover, the higher level of
sales representative hiring is expected to hurt margins in the near term.

Akamai continues to acquire a large number of companies. While this improves revenue
opportunities, it adds to integration risks. The frequent acquisitions can negatively impact its
balance sheet in the form of a high level of goodwill and intangible assets, which totaled $831.1
million, or 28.8% of its total assets at the end of the first nine months of 2013. Frequent acquisitions
are also a distraction for management and could impact organic growth, going forward. This may
limit Akamai s future expansion and worsen the company s risk profile, going ahead.
Equity Research AKAM | Page 9

DISCLOSURES & DEFINITIONS
The analysts contributing to this report do not hold any shares of AKAM. The EPS and revenue forecasts are the Zacks Consensus
estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts personal
views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectly,
related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this
report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to
accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meet
the particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as an
offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have a
position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for the
securities it covers. Outperform- Zacks expects that the subject company will outperform the broader U.S. equity market over the next six to
twelve months. Neutral- Zacks expects that the company will perform in line with the broader U.S. equity market over the next six to twelve
months. Underperform- Zacks expects the company will under perform the broader U.S. Equity market over the next six to twelve months. The
current distribution of Zacks Ratings is as follows on the 1058 companies covered: Outperform - 16.8%, Neutral - 76.8%, Underperform

5.6%.
Data is as of midnight on the business day immediately prior to this publication.
Our recommendation for each stock is closely linked to the Zacks Rank, which results from a proprietary quantitative model using trends in
earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The model
assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks
Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness of a
company s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of
investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. In
determining Risk Level, we rely on a proprietary quantitative model that divides the entire universe of stocks into five groups, based on each
stock s historical price volatility. The first group has stocks with the lowest values and are deemed Low Risk, while the 5
th
group has the highest
values and are designated High Risk. Designations of Below-Average Risk, Average Risk, and Above-Average Risk correspond to the
second, third, and fourth groups of stocks, respectively.