As we’ve all been stuck at home amid the coronavirus pandemic, a few stocks have become clear winners of our new stay-at-home economy.
Amazon shares are up nearly 30% since the start of the year. Netflix is up 32%. And Zoom, the video conferencing platform that has seen a massive surge in users, is up a whopping 148.5% year-to-date.
And it’s no wonder why. Amazon’s everything-store and rapid delivery make shopping from home a breeze. Netflix has hours of entertainment when we’re all stuck on the couch. And Zoom’s videoconferencing software gives us all a platform for school, work, religious services, and virtual family dinners, among a million other things.
But as investors have flocked to these stocks, they’ve become expensive. Zoom, for example, at Thursday’s close of $169.09, has a market cap of $47.18 billion. That’s more than 45 times this year’s estimated sales. At that valuation, Zoom stock makes sense for only the most speculative of portfolios.
Luckily, there are other ways for investors to play the stay-at-home trend at far lower multiples.
One stock to consider is Akamai Technologies (NASDAQ: AKAM). This global content delivery network (CDN), cybersecurity, and cloud services company is one of the world’s largest distributed computing platforms, serving between 15% and 30% of all web traffic.
Earlier this month, Raymond James analyst Michael Turits upgraded Akamai to Outperform and issued a price target of $110, writing in a note, “we upgrade AKAM to Outperform from Market Perform with the core CDN business likely a direct COVID beneficiary with increased web traffic in a WFH environment, and the expansive opportunity in cloud security.”
Speaking of “increased web traffic,” at a virtual customer event recently, CEO Tom Leighton said that Akamai saw a 30% jump in traffic in February and March, with peak traffic doubling to historic levels.
“Among CDNs we view Akamai as benefiting in the most sustainable long-term manner given: a) its dominant share; b) long-term security as well as short-term CDN drivers; and c) strong balance sheet and cash flow ($533M net cash, $570M 2020E FCF),” Turtis wrote. “Our $110 target is based on 20.9x 2021 EPS of $5.25.”
Turits isn’t the only analyst bullish on the stock. This past week, RBC Capital’s Mark Mahaney boosted his estimates on Akamai to reflect “our more bullish view of internet traffic and accelerated adoption of remote access, of which we believe Akamai would be a direct beneficiary.”
While Akamai shares are up more than 18% so far this year, it still trades at less than six times estimated revenue for 2020.
Another stock in the CDN space that’s worth a look is Cloudflare (NYSE: NET).
Piper Sandler said in a note earlier this month that the coronavirus “will likely accelerate cord-cutting, increase typical gaming usage, and move networks/security solutions for remote work towards CDN solutions,” and named Cloudflare one of its top picks in the “must have” CDN sector.
Cloudflare CEO Matthew Prince said recently that the company and other infrastructure providers have helped customers handle the spikes in online activity as work and school have shifted to home.
“The heroes of this crisis are the medical responders and scientists, but the cloud is like the faithful sidekick,” Prince said. “Had this happened 10 years ago, we’d all be in a lot worse shape.”