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Why Akamai Technologies, Inc. Rose 18.3% in February

By Anders Bylund - Mar 7, 2016 at 6:30PM

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Thanks to solid sales of security services, the online traffic distributor crushed Wall Street's expectations in the fourth quarter.

Image source: Akamai.

What: Shares of Akamai Technologies (AKAM 0.49%) gained 18.3% in 2015, according to data from S&P Capital IQ. The Internet content distribution specialist posted stellar fourth-quarter results in early February, and the stock simply never looked back.

So what: In the fourth quarter, Akamai's sales rose 11% year over year to $579 million, 3% above the analyst consensus. On the bottom line, adjusted earnings increased by 5% to $0.72 per share, while Wall Street had expected shrinking earnings.

The company also took this moment to break its single operating unit into two reportable segments. Starting in the next quarter, investors will get detailed updates on media content operations, and another close look at general web distribution.

Looking ahead, management set first-quarter targets roughly in line with Wall Street's prevailing views.

Now what: Akamai's business is evolving from a pure content delivery network into a first line of defense against network security threats. Rampant security service sales drove the fourth quarter's revenue and net income surprises. In particular, Akamai has naturally become an authority on cloud computing security solutions.

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

CEO Tom Leighton also provided some evidence of his own conviction in Akamai's current strategy, as he started up a $10 million 10b5-1 stock purchase plan. "We are just beginning to tap into an enterprise security and networking market that could someday be larger than the current market for our web services," he said on a conference call with analysts.

In my eyes, that's a value play as much as it is a play on future growth opportunities. Even after this fantastic February bounce, Akamai shares have still fallen 24% over the last six months while the overall market gained 4%. If you want to play along with Tom Leighton, it's not too late to grab some Akamai stubs at a discounted price.

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