A Better Choice: Akamai and Cloudflare

Increased market volatility has led to sharp declines in the prices of several tech stocks with sound fundamentals this year. However, software companies Akamai (AKAM) and Cloudflare (NET) could bounce back, given the tech sector’s solid long-term outlook. But which of these stocks is the better buy right now? Read more to find out. .



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Akamai Technologies (Arkham) provides cloud services for securing, delivering and optimizing content and business applications over the Internet in the United States and internationally. On the other hand, Cloudflare, Inc. (network) operates as a cloud service provider offering a range of services to businesses around the world. It provides an integrated cloud-based security solution to protect a range of platforms.

Historically high inflation remains untouched despite higher interest rates. Therefore, the Fed may announce further rate hikes in the short term. Such expectations have led to a sharp deterioration in the performance of tech stocks, as evidenced by the Nasdaq Composite’s 30.9% decline so far this year. However, given the solid long-term outlook for the tech sector, expect tech stocks with sound fundamentals to rebound soon.

Additionally, cyber threats and related crimes are on the rise with increased online activity and a predominantly mixed work culture.According to Embroker, IoT cyberattacks are Expected to double by 2025. Business operators are looking for smart software solutions to protect their valuable online data. It is estimated that this surge in demand will generate substantial profit margins for global software companies, which will benefit both AKAM and NET.

AKAM is down 23.1% over the past year, while NET is down 55.8%. Also, AKAM is down 7.7% over the past month, while NET is down 37.4%. Which of these stocks is the better buy right now? Let’s find out.

Latest News

On June 6, 2022, AKAM launched Malware Protection, Block web applications and APIs from cyber threats. In today’s world of increased online activity, this handy app is designed to provide an improved security output for all customers by filtering malicious ‘at the edge’, providing increased protection.

On the other hand, on May 5, 2022, Matthew Prince, co-founder and CEO of NET, stated: “Our largest customer continues to expand, with year-over-year growth in customers spending over $1 million per year. 72%.”

He added: “Key to our success and customer expansion is innovation at an unrelenting pace and continued interest in consolidating a single vendor capable of supporting multiple network services at scale.”

recent financial results

For the first quarter ended March 31, 2022, AKAM’s revenue increased 7.2% year over year to $903.65 million. Its non-GAAP operating income was $270.10 million, up 2.4% year over year, while non-GAAP earnings per share were $1.39 compared to $1.38 a year earlier.In addition, its adjustment EBITDA Revenue was $391.28 million, up 4.2% year over year.

NET’s revenue rose 53.7% year over year to $212.17 million in the first quarter ended March 31, 2022. Its non-GAAP net income was $3.45 million compared to a loss of $9.33 million in the year-ago period, while its non-GAAP EPS was $0.01 compared to a loss per share of $0.03.

Past and expected financial performance

AKAM’s revenue has grown at a CAGR of 8.6% over the past three years. Analysts expect AKAM’s revenue to grow 5.6% this year and 8.3% next year. The company’s earnings per share are expected to rise 14.1% next year. Additionally, its EPS is expected to grow 10.7% annually over the next five years.

On the other hand, NET’s revenue has grown at a CAGR of 50.9% over the past three years. Analysts expect the company’s revenue to rise 46% this year and 36.1% next year. The company’s earnings per share are expected to grow 160% this year and 200% the following year.

Profitability

AKAM’s net profit margin of 17.46% is higher than NET’s negative 35.83%. Furthermore, AKAM’s EBIT margin and EBITDA margin were 23.00% and 34.26%, respectively, significantly higher than NET’s negative 18.27% and 11.39%. Furthermore, AKAM’s ROTC is 6.90%, while NET is negative 5.01%.

So AKAM is more profitable here.

Valuation

In terms of forward EV/Sales, AKAM is currently trading at 4.81x, lower than NET’s 15.96x. Furthermore, AKAM’s 11.15x forward EV/EBITDA is 92.3% lower than NET’s 144.14x.

As such, AKAM is a relatively affordable stock here.

POWR rating

AKAM has an overall rating of B, equivalent to our proprietary Buy POWR rating system. On the other hand, NET has an overall rating of D, which is a sell. The calculation of the POWR rating takes into account 118 different factors, each weighted to an optimal degree.

AKAM is valued at a B grade, in line with its lower-than-industry valuation multiple. AKAM’s 11.15x forward EV/EBITDA is 7.5% below the industry average of 12.06x. On the other hand, NET has a Value Rating of F, in line with its forward EV/EBITDA of 144.14x, which is significantly higher than the industry average.

AKAM’s quality grade is B, in line with its higher-than-industry profit margins. AKAM’s trailing 12-month leveraged FCF margin of 22.03% is 130.3% higher than the industry average of 9.56%. On the other hand, NET has a quality level of C. NET’s trailing 12-month leveraged FCF margin of 8.66% is 9.5% below the industry average.

out of 56 stocks Software – Commercial Industry, AKAM ranked 12th. On the other hand, NET ranks 23rd out of 30 stocks. Software – Security industry.

In addition to what we said above, we also rate these stocks for growth, momentum, stability, and sentiment.click here Check out AKAM ratings.Get all NET ratings here.

winner, champion

Strong demand for software tools and services bodes well for AKAM and NET as virtual activity increases. However, AKAM’s relative affordability and higher profitability make it a better choice.

Our research shows that the odds of success increase when a person invests in stocks with an overall rating of “Strong Buy” or “Buy.”View All Top Rated Stocks in the Software Business Industry here and software security industry here.


Shares of AKAM traded at $87.72 per share on Tuesday afternoon, down $3.34 (-3.67%). Year-to-date, AKAM has lost -25.05%, while the benchmark S&P 500 has gained -21.07% over the same period.


About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master’s degree in economics, she helps investors make informed investment decisions through insightful commentary.

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