Akamai Technologies Inc (AKAM)

Conclusion

Akamai Technologies Inc (AKAM.US) provides security, content delivery and cloud computing services, including web and API protection, bot mitigation, cloud compute and media delivery. At 80.29 USD per share, the company has a market capitalisation of 11.5 billion USD and an enterprise value of 17.5 billion USD.

The verdict is fair. The fair value band runs from 67.66 to 101.49 USD with a midpoint of 84.57 USD, giving a margin of safety of 5.3% at the current price. The price-to-earnings ratio of 29.7x sits against a ten-year median of 30.2x, and EV to EBITDA of 14.1x against 14.6x. Price to free cash flow of 54.7x compares with a median of 20.4x. The fair value from historical multiples is 84.57 USD. The DCF per share and the reverse DCF are not available, so the growth the price implies cannot be set against delivered growth. Revenue has compounded at 5.6% over five years, while EPS has fallen at 1.8% a year.

Revenue has grown in each of the last ten years, and free cash flow conversion over five years is 142.8%. The Beneish M-score of -2.81 reads unlikely. The weakest numbers are a return on invested capital of 3.4% against a WACC of 6.5%, net debt to EBITDA of 4.8x, and trailing free cash flow after stock-based compensation of -315.2 million USD. These are what would break the case.

Financial health

Financial strength is yellow. The current ratio of 2.13 and interest coverage of 10.34 hold it up, while net debt to EBITDA of 4.78 pulls it down. The quick ratio is 1.98 and debt to equity is 1.84. The Altman Z-score is not available because its inputs are missing. The Altman model was designed for manufacturers, so it would be only a rough guide for a software and infrastructure company even with complete data. Insolvency risk is low, with an estimated probability of about 0.6% by the Ohlson model over one to two years, based on figures as of 31 December 2025.

Earnings quality

Earnings quality is green. Free cash flow conversion is 54.4% on a trailing basis and 142.8% over five years. The accrual ratio of -9.8% shows cash earnings running ahead of reported earnings. The Beneish M-score of -2.81 is unlikely to indicate manipulation. The share count has fallen by 2.3% a year over five years, which points to buybacks. The company beat estimates in seven of the last eight quarters, with an average surprise of 2.8%. The weak points are stock-based compensation at 12.0% of revenue and trailing free cash flow after that compensation of -315.2 million USD. The Piotroski score of 5 out of 9 is neutral. Estimates for the current year have been cut by 2.3% over 90 days, and estimates for next year by 3.3%.

Profitability

Profitability is red. The gross margin of 55.4% is below its ten-year median of 64.0%. The operating margin of 10.4% compares with a median of 17.7%, and the net margin of 8.8% with a median of 14.0%. Return on invested capital is 3.4% against a WACC of 6.5%, and the given ROIC minus WACC value is -3.2%. The five-year median ROIC is 6.1%. Return on equity is 7.5% on a trailing basis. The DuPont split shows a net margin of 10.7%, an asset turnover of 0.37 and an equity multiplier of 2.31 (2025). Leverage is therefore lifting the return, and the underlying return on capital is still below the cost of capital.

Growth

Growth is yellow. Revenue compounded at 5.2% over three years, 5.6% over five years and 6.7% over ten years, and it grew in all ten of the last ten years. EPS fell at 2.0% a year over three years and 1.8% over five years, while it rose 5.6% a year over ten years. Free cash flow per share fell 2.2% a year over three years, rose 10.2% over five years and 9.4% over ten. The consensus estimate for next year's EPS growth is 6.0%.

Valuation

Valuation is yellow, and the verdict is fair. Against ten-year medians, the price-to-earnings ratio of 29.7x is 1.5% below its median of 30.2x. EV to EBITDA of 14.1x is 3.4% below 14.6x. Price to free cash flow of 54.7x is 168.5% above its median of 20.4x. Price to sales of 2.6x is 44.1% below 4.7x, and price to book of 2.2x is 37.9% below 3.6x. The DCF gives no per-share value here. The discount rate is 8.9% and the terminal growth rate 2.5%, but trailing free cash flow is negative, at -315.2 million USD. The fair value band runs from 67.66 to 101.49 USD, with a midpoint of 84.57 USD and a margin of safety of 5.3%. These figures are an order-of-magnitude estimate built on fixed assumptions, a 5% equity risk premium and capped growth, not a price target. The company pays no dividend.

Risks

Net debt of 4.8x EBITDA leaves little room: a fall in EBITDA would raise leverage further. A return on invested capital of 3.4% below a WACC of 6.5% means the business currently earns less than its cost of capital. Negative free cash flow after stock-based compensation means that buybacks and pay are not fully covered by cash generation. Earnings per share have shrunk over three and five years, and estimates are being revised down. The Altman Z-score, the DCF per share and the reverse DCF are not available. This analysis has no debt maturity schedule and no revenue split by segment, so refinancing risk and the mix of growth cannot be assessed.