Valens Equity Weekly Insights - 2023 11 21
Akamai Technologies (AKAM) has been rapidly growing its high-margin cybersecurity and edge computing businesses. Uniform Accounting highlights the company's profitability potential as it grows these businesses, a trend the market seems to be missing, indicating equity upside is warranted.While Akamai's legacy CDN business is viewed by the market as a saturated utility, the company has been pivoting towards higher margin businesses like cybersecurity and edge computing, giving it the ability to reinvigorate growth and returns. As this business continue growing thanks to tailwinds from AI and overtake the CDN business, Uniform ROA should start accelerating, which the market is not pricing in at all.
Akamai's management is aligned to focus on revenue, non-GAAP operating income, and non-GAAP EPS, which will lead management to profitably grow the business. These metrics should drive strong ROA performance.
Management confidence in the Q2 earnings call about the potential of AI and the stability of its legacy CDN business support ROA expansion and continued growth.
Infinera (INFN) is being removed from the Conviction Long List. An incoming recession will lead to decreased spending on telecommunication infrastructure and Infinera is likely to get swept by market pessimism in the near term
AKAM
Akamai Technologies provides solutions for securing, delivering and optimizing content and business applications over the Internet. The company provides online solutions for the security, delivery and acceleration of websites and applications. The company's solutions include: cloud security solutions; enterprise security solutions; web and mobile performance solutions; media delivery solutions; carrier solutions; and services and support solutions, which provides an array of service and support offerings that are designed to assist its customers with integrating, configuring, optimizing and managing its main offerings.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
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