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Oct 2 (Reuters) - Wedbush Morgan Securities downgraded Akamai Technologies Inc (AKAM.O) to “hold” from “buy,” saying weak economy and competition could weigh on the company’s financial performance resulting in weaker-than-expected outlook.
Goldman Sachs also downgraded the stock to “sell” from “neutral,” according to theflyonthewall.com.
Shares of Akamai, which provides services that help speed delivery of Web content, fell as much as 12 percent following the rating cuts.
Wedbush said it expects traffic growth for Akamai’s media and entertainment segment to remain challenged as the economy decelerates. The slowing traffic growth at the segment is partially due to budget reductions at its customers, it added.
A more competitive market has shortened contract lengths, pushed contract terms toward annual commitments, and led to more fixed rate pricing, Wedbush analyst Kerry Rice said.
“If Akamai became more price competitive, we would expect margins to erode,” Rice said, adding that the company’s gross margin has declined since 2005 due to the competitive pricing environment.
Wedbush, which cut its price target on the stock by $3 to $20, said it reduced its estimates for the company to reflect the expected impact of the macro economic pressures and increasing competition on fiscal 2009 outlook.
The company’s shares fell 10 percent to $15.41 in morning trade on Nasdaq. They had touched a low of $15.10 earlier. (Reporting by Deepti Govind in Bangalore; Editing by Deepak Kannan)