Amid Akamai Acquisition Chatter, Earnings Could Again Sink Stock

Over the past few weeks, Akamai (NASDAQ:AKAM) stock’s volatility has increased as the speculation around its acquisition has gained strength. Akamai’s stock has declined by more than 50% from the highs of $50 at the beginning of the year to $24 as of today, and this decline has made it an attractive acquisition target. It all started when the speculation that Akamai could be acquired either by IBM (NYSE:IBM) or Verizon (NYSE:VZ) circulated the rumor mill. A few weeks ago, the stock jumped again on the speculation that Google (NASDAQ:GOOG) could be interested in buying Akamai (see Akamai Shares Swing on Google Takeover Rumors, Fair Value at $31). Google has subsequently denied these intentions.

We believe that the next big trigger for Akamai’s stock would be its Q3 2011 earnings expected to be announced by the company on October 26th. History suggests that Akamai’s stock moves a lot on the day the earnings are announced. If we look back at the last three quarters’ of data, the Akamai stock has crashed every time on the earnings day (see Akamai’s Stock Crashes on Weak Outlook, Sell Off Overdone).

Each time, the market has punished Akamai on the account of weak outlook provided during earnings announcement. Hence the upcoming earnings announcement becomes crucial from Akamai’s point of view, and could decide the direction that the stock will take in this quarter.

Our $31 price estimate for Akamai stock is about 25% above market price.

See our complete analysis for Akamai stock here

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