If Resistance Holds, Akamai Technologies, Inc. (NASDAQ:AKAM) Can Fall

September 24, 2013, 10:20 am ET, BY Neal- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Akamai Technologies, Inc. (NASDAQ:AKAM) provides content delivery and cloud infrastructure services for applications over the Internet.  The company’s stock rocketed up over 20% in April on blowout first-quarter earnings. In its most recent quarter, Akamai reported revenues of $378 million, a 14% year-over-year increase with a 25% gain in net income.  The company has been running on all cylinders, but with the stock trading near five -year highs, is it a buy, sell or hold?

Akamai accounts for an estimated 20% of all Web traffic. The company has servers in more than 700 cities and 80 countries around the world, and Akamai delivers content to the 60 top e-commerce sites, all 30 top media sites, nine of the 10 top banks and other major portals.  Many companies spend money on web acceleration and content delivery technologies to avoid lost sales and customers due to slow web pages. After the recent upgrade of the company’s FastTCP network, indicators showed significant improvements in select customer and end user instances, ranging from 8% in Japan to 105% in China, with both North America and Europe seeing 15% to 22% increases.  These increases not only improved download speeds for music/MP3s, games and videos, but also enhanced the quality of streaming video. This is very important to Akamai’s customers who will pay to reduce the number of times a video stream pauses or stalls, as they work to increase viewer retention rates.

However, Akamai’s fastest growing division is its security solutions segment, which is generating nearly half of its total revenues.  During Q4 2012, the segment saw five times growth on the prior year quarter, and subsequent first and second quarters delivered growth of 17% and 19% respectively.  The company has been hiring sales staff to add new customers, which could take four or five quarters to get the full benefits of the sales force.  In any case, the company has been keeping investors happy, as the stock is up over 160% over the last two years, and based on the Stock Traders Daily real-time live trading report, is currently near a test of long-term resistance as well.

Akamai has been working on cybersecurity defenses for its platform for over a decade, long before attackers began making headlines by taking down websites for major banks and enterprises.  Over the past year, the Kona Site Defender solution has proved to be successful against even the largest and most sophisticated attacks. The Kona Site Defender is unique because it can utilize a massive scale to identify and filter out attacks well before they reach the enterprise or cloud data center, without negatively affecting performance.  This means that Akamai's defenses operate in an always-on mode, which is an important advantage over traditional security solutions, as many are turned on after the attack has begun because of performance issues, and those can often be too late.

One problem for Akamai with its older CDN business is that prices have been falling, as much as 15% to 20% a year. The company will also have to compete with the likes of Limelight Networks, Inc. (NASDAQ:LLNW) and Amazon.com, Inc.’s (NASDAQ:AMZN) Amazon Web Services.  So far, rising volume continues to offset the falling CDN prices, as mobile e-commerce, online video, downloaded games and data traffic soar over Akamai's CDN network.  By expanding into cloud infrastructure, AKAM can target higher margins and big clients such as AT&T Inc. (NYSE:T) for its AURA network solutions, as well as Apple Inc. (NASDAQ:AAPL).

Business has been good for Akamai and shareholders are holding significant profits right now.  It is notable however, that Akamai’s director Paul Sagan sold 50,000 shares of AKAM on the open market on Wednesday, September 18. The shares were sold at an average price of $52.03, for a total value of $2,601,500.00. So, even as its business continues to thrive, stock price matters, it mattered to him, and right now the stock is near a five year high, and close to a test of long-term resistance.  If the stock tests resistance, and remains below resistance, as defined in our real time trading report, Stock Traders Daily expects lower levels and a test of support.  That would make AKAM a sell/short at resistance, with risk controls defined as a break above resistance.

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