Saturday, July 30, 2011

Akamai collapse continues

My apologies to anyone who listened to me.

On May 17th there was a post here, "Akamai, a jewel on sale", that suggested Akamai as an undervalued stock that was ripe for acquisition. The stock was at around $30 then. After yesterday it is at $24, about half of what it was 9 months ago. What a disaster for any short term investor.

For long term investors that have already been rewarded well over the years the dilemma now is whether to just give up and take leftover gains or hang in there. Akamai remains a cash rich mid-cap tech company with no debt. It now trades at just a 14x forward p/e. 20% of all internet traffic flows through its servers. What has happened, however, is that it is no longer seen as a high growth company.

The competitive landscape has changed, the cloud competitors have taken a slice of the high valued added and high margin business, and Akamai's core business is becoming a commodity subject to pricing competition and compressed margins.

Accepting that, Akamai is still growing earnings and revenues in the double digits. It has a global franchise. It's services are still essential. What one can't really know as an investor outside of the narrow world of this tech space is whether their MIT related algorithym prowess has in some way diminished. Are they cutting edge or are they institutionalized now.

Whatever the answer, they are more than ever an acquisition target for some cash rich large firm, but now the question is at what price?

I am mulling over my next move, which is muddied by the debt ceiling political dysfunction. Who really knows the price of anything until this political impasse, this suicide attempt, is resolved.


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