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Akamai soars on Chase H&Q coverage

Shares of Akamai Technologies jump after a Chase H&Q analyst initiates coverage with a "buy" rating and a $175 to $180 price target.

Shares of Akamai Technologies jumped today after a Chase H&Q analyst initiated coverage with a "buy" rating and a $175 to $180 price target.

The bullish comments by analyst David Levy sent shares of the Internet content distributor up $21.38, or more than 23 percent, to $115.38 by market close. Volume surpassed 9.6 million shares, almost six times the stock's average daily volume.

Akamai helps Web sites improve the speed at which pages are delivered through a network of 4,000 servers that distribute ads, video and other content.

"While originally perceived as a company accelerating Web page delivery, we believe that Akamai is transforming into a company building a platform for the delivery of all content (including text, graphics and streaming media), applications and transactions from the edge of the network," Levy wrote in his report.

He added that the Cambridge, Mass.-based company's recent acquisition of streaming media providers Intervu and Network24 will broaden its services. Akamai controls its technology while its competitors often rely on other providers, which Levy considers an advantage.

Levy estimates the company will generate revenue of $78 million this year compared to just $4 million last fiscal year, and will post revenue of $172 million for fiscal year 2001.

However, Levy expects the company to lose $2.13 a share this year, compared with consensus estimates of $2.11, according to a poll by research firm First Call. Levy predicts the losses will increase to $2.55 per share in fiscal year 2001.

Akamai shares have fallen 66 percent this year; the stock has traded as high as $345.50 and as low as $26 over the past 52 weeks.

Akamai aims to end Web waits Levy believes the stock is worth the risk because the company's "first-mover advantage" and business strategy could lead it to dominate a growing market.

"They are already gross-margin positive," Levy said in an interview, "and they have enough cash to get them through this year and next year."

Levy expects the company will not be cash-flow positive until 2005 as it spends money to build out its network and keep up with the competition. "They will need money," he said, "and their access to capital is far from guaranteed."

Analyst Scott Sutherland of Wedbush Morgan Securities agreed. "Losing the opportunity to be the first mover is a greater risk than losing money (in the short term)," he said.