Akamai Technologies Inc. Quarterly Valuation – November 2014 $AKAM

220px-Akamai_logo.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – November 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Akamai Technologies Inc. (AKAM) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Akamai Technologies, Inc. (Akamai) provides content delivery and cloud infrastructure services for the delivery of content and applications over the Internet. The Company’s solutions range from delivery of conventional content on Websites, to tools that support the delivery and operation of cloud-based applications, to live and on-demand streaming video capabilities all designed to help its customers interact with people accessing the Internet from myriad devices and locations around the world. The Company offers five solutions designed to meet the online business needs of its customers: Terra, Aqua, Sola, Kona and Aura. In February 2014, Akamai Technologies Inc completed the acquisition of Prolexic Technologies Inc.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend - FAIL
  5. Earnings growth – EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $63.72
MG Value $63.76
MG Opinion Fairly Valued
Value Based on 3% Growth $24.01
Value Based on 0% Growth $14.08
Market Implied Growth Rate 14.99%
Net Current Asset Value (NCAV) $0.81
PEmg 38.48
Current Ratio 3.82
PB Ratio 4.05

Balance Sheet – September 2014

Current Assets $1,153,000,000
Current Liabilities $302,000,000
Total Debt $600,000,000
Total Assets $3,854,000,000
Intangible Assets $1,190,000,000
Total Liabilities $1,006,000,000
Outstanding Shares 181,000,000

Earnings Per Share

2014 (estimate) $2.40
2013 $1.61
2012 $1.12
2011 $1.07
2010 $0.90
2009 $0.78
2008 $0.79
2007 $0.56
2006 $0.34
2005 $2.11
2004 $0.25

Earnings Per Share – ModernGraham

2014 (estimate) $1.66
2013 $1.22
2012 $1.00
2011 $0.90
2010 $0.76
2009 $0.77

Dividend History
Akamai Technologies does not pay a dividend.


Akamai Technologies qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the lack of dividend payments as well as the high PEmg and PB ratios, while the Enterprising Investor is only concerned by the lack of dividend payments.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $0.76 in 2010 to an estimated $1.66 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 14.99% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price.

Be sure to check out previous ModernGraham valuations of Akamai Technologies Inc. (AKAM) for greater perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Akamai Technologies Inc. (AKAM)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Akamai Technologies Inc. (AKAM) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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