Akamai Technologies (
recently announced that it plans to acquire Prolexic Technologies
for a net cash of $370.0 million. The transaction is expected to
be completed in the first half of 2014.
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Although the transaction will not have any effect on
fourth-quarter 2013 guidance, it will negatively impact Akamai's
full-year 2014 non-GAAP earnings by approximately 6 cents to 8
cents. However, the acquisition is expected to boost organic
revenue growth by 4.0%.
Prolexic develops cyber security software that protects data
centers and enterprise applications from distributed denial of
service (DDoS) attacks. DDoS is the most common form of cyber
attack that uses a large number of computers to bring down the
targeted network with huge traffic.
DDoS attacks can come at the network level or at the application
level. According to an October report from Arbor Networks, DDoS
attacks exceeding 20 Gbps have so far quadrupled in 2013 compared
with the previous year.
Hackers have targeted large U.S. banks including
Bank of America (
J.P. Morgan Chase (
as well as media companies such as The New York Times and
Israel-based network security solutions provider
estimates that DDoS attacks cost negatively impacts financial
services company an average of $32,560 per minute of downtime.
Akamai's present security solutions including Kona site defender
are focused on the application layer. The addition of Prolexic
expands the company's product offerings for non-web applications
as well as enterprise data centers.
According to ABI Research, global cyber security spending in
critical infrastructure areas is expected to increase $4.25
billion over 2012 to $46.0 billion in 2013. Further, as per
research conducted by ReportsnReports.com, global cyber security
spending is expected to reach $165.0 million by 2023.
We believe that this significant growth in spending bodes well
for Akamai. The expanding product portfolio will help the company
to grab significant cyber security market share in the long run.
Moreover, Prolexic's recurring revenue model will boost top line,
However, in order to differentiate its products, Akamai is
significantly investing in research & development and is also
expanding its sales force through new recruits. This additional
spending coupled with the dilutive nature of the acquisition will
hurt profitability in 2014.
Currently, Akamai has a Zacks Rank #3 (Hold).