Akamai (AKAM) Closes Linode Buyout to Boost Cloud Competencies – March 22, 2022

Akamai Technologies, Inc. (AKAM Free Report) recently announced that it has completed the buyout of Linode for $ 900 million. The acquisition of this leading Infrastructure-as-a-service platform provider will augment Akamai’s leading position in the market and will likely leapfrog it as the world’s most distributed compute platform, from cloud to edge.

The deal inked in February this year aims to combine Linode’s developer-friendly cloud computing capabilities with Akamai’s market-leading edge platform and security services. With more than two decades of rich industry experience, Linode operates as one of the world’s largest independent open cloud providers, with 11 global data centers serving nearly a million customers and businesses around the globe. Its flagship products are cloud-hosting services with multiple packages at different price points that enable users to easily manage and scale infrastructure facilities for low latency secure network.

The transaction, structured as an asset purchase, is likely to help Akamai achieve cash income tax savings over the next 15 years with an estimated net present value of approximately $ 120 million. The buyout is anticipated to be accretive to non-GAAP earnings in fiscal 2022 to the tune of 5-6 cents on a per share basis, generating about $ 100 million incremental revenue.

We believe that the increasing adoption of cloud computing technologies will be a major growth driver for Akamai. The company’s cloud optimization solutions help organizations improve performance, increase availability and enhance the security of applications and key web assets delivered from data centers to the end user. Since a large portion of the revenue is recurring in kind, the company is expected to boost its sales force and investments by developing new products to achieve its long-term annual revenue target of $ 5 billion.

Cybersecurity is an area that holds a lot of promise for Akamai. 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. We believe that the growing demand for Akamai’s security solutions will translate into significant growth opportunities over the long term. The company’s security offerings are poised to gain from higher demand for data computing at the edge, triggered by rapid deployment of 5G and IoT devices proliferation.

The stock has gained 16.3% over the past year compared to the industry’s rally of 11.2%.

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Akamai currently has a Zacks Rank # 3 (Hold).

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