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Akamai’s Nominum Buyout to Boost Carrier & Enterprise Clients

Zacks

Akamai Technologies Inc AKAM is strengthening its security product portfolio. The company recently announced plans to acquire Nominum, a leading provider of DNS and enterprise security solutions for carriers.

Akamai intends to integrate Nominum’s carrier-grade cybersecurity solutions with its enterprise security offerings and threat intelligence. This will help the company in expanding its presence among carrier and enterprise customers.

Nominum is well-known for three of its DNS security products – Vantio CacheServer, Big Data Connector, and Vantio AuthServe. These products face competition from Cisco Systems Inc’s CSCO OpenDNS Software-as-a-Service (SaaS) offering and Infoblox.

Akamai believes that the integrated security product portfolio will be more effective in identifying, blocking and mitigating malware, ransomware, phishing as well as data exfiltration threats.

However, Nominum’s acquisition will be dilutive to Akamai’s fourth-quarter earnings by almost a nickel. The acquisition is anticipated to negatively impact fiscal 2018 earnings by 11 cents. The company still expects to maintain EBITDA margin range within mid-30’s including Nominum. Moreover, management expects the buyout to be accretive in fiscal 2019.

Notably, Akamai’s shares have lost 24.2% of its value year to date versus the 25.6% increase of its industry.



Security: Key Catalyst for Akamai

Security is an area that holds a lot of promise for Akamai in our view. The cyber attacks at Equifax Inc EFX, Avast’s CCleaner and two back-to-back ransomware attacks — WannaCry or WannaCrypt in May and Petya in June — created global chaos, recently.

We believe that the urgency for stricter security measures will compel enterprises as well as governments to increase spending on cybersecurity software. According to a Markets and Markets July-2017 report, worldwide cybersecurity spending will reach $137.85 billion this year and $231.94 billion by 2022. The solid spending trend bodes well for Akamai.

We believe that the expanded security portfolio will help Akamai gain significant share in the security market in the long haul. Notably, the company’s cloud security business reported revenues of $115 million that increased 34% from the year-ago quarter.

In the last quarter, the company launched two products — Enterprise Threat Protector and Bot Manager Premier. Akamai expects revenues from the security business to exceed $1 billion within the next four to five years driven by strong adoption of Kona Site Defender, Prolexic, Bot Manager and Web Application Protector product offerings.

Moreover, expansion of the security product portfolio will lower Akamai’s dependence on the media delivery solutions. Further, rapid growth in security is expected to offset loss of large customers in the content delivery network (CDN) space.

Zacks Rank & Key Pick

Currently, Akamai has a Zacks Rank #3 (Hold). Autohome Inc ATHM sporting a Zacks Rank #1 (Strong Buy) is a stock worth considering in the same sector. You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for Autohome is currently pegged at 15.94%.

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