Akamai (AKAM) Downgraded To Strong Sell On DIY Woes

On Aug 17, 2016, Zacks Investment Research downgraded Akamai Technologies Inc. (NASDAQ:AKAM) to a Zacks Rank #5 (Strong Sell). Going by the Zacks model, companies holding a Zacks Rank #5 are likely to underperform the broader market over the next one to three months.

This prominent content delivery network (CDN) and cloud infrastructure services provider has seen downward estimate revisions since it announced second-quarter 2016 results on Jul 26, 2016.

Why the Downgrade?

Akamai has been seeing weakness for the last few quarters. Its business is being hurt by do-it-yourself (DIY) initiatives of some key clients in the CDN space. In addition, intense competition has kept pricing under pressure, which is a significant headwind. Furthermore, the over-the-top (OTT) video market has been sluggish of late. Even though consumers continue to shift from traditional videos to OTT, the rate of conversion is lower than expected.

In fact, Akamai has already done some management shuffling to curb this trend of DIY in the CDN space. Yesterday, the company appointed Daniel Hesse as the newest member of its board of directors. Hesse formerly served as the CEO of Sprint Corporation (NYSE:S) .

Furthermore, the company delivered lower-than-expected results in the last quarter with both the top and the bottom lines falling short of their respective Zacks Consensus Estimate. In addition, the company gave a subdued outlook for the ongoing quarter.

As a result, the company has been seeing downward estimate revisions. Over the last 30 days, the Zacks Consensus Estimate for 2016 declined 4.6% to $2.06 per share while that for 2017 dropped 8.1% to $2.28 a share.

Nonetheless, the company expects growth to recover to some extent in 2017. Akamai, which has a leading position in the CDN market, is also expected to benefit from the rising demand for cloud infrastructure solutions, security, mobile products and online video.

Stocks to Consider

A couple of better-ranked stocks in the technology sector are Facebook, Inc. (NASDAQ:FB) and LinkedIn Corporation (NYSE:LNKD) , both sporting a Zacks Rank #1 (Strong Buy).