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Akamai Technologies Could Be a Winner in the Long Run

May 05, 2014 | About:
kcpl

kcpl

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Cloud services provider Akamai Technologies (AKAM) demonstrated excellent fourth quarter results. The company provides its content delivery network services and security services to Apple (AAPL), apart from other big media conglomerates and banks located worldwide. The solid growth for Akamai is all due to this big clientele.

Solid Results

Akamai is continuously posting solid results with positive earnings surprises since the last four quarters. The results were strong for the fourth quarter as well, with net income amounting to $80.3 million, up from $68.3 million last year. Akamai’s revenue rose 15% to $436 million in the previous quarter driven by the strong adoption of its services.

The content delivery services of Akamai are doing well, leading to strong revenue and earnings growth. Globally, Akamai operates 150,000 servers and supports its customers in delivering software updates, images and other data.

There’s a strong momentum across Akamai’s video, gaming, social media and software download customer base. Moreover, the growth in the performance and security solutions business is led by strong demand for its website and application acceleration solutions. Looking ahead, the higher service attachment rates of its core media, core performance and security offerings are expected to push its service and support solutions business.

Globally, Akamai has performed well. Its sales grew by 21% in North America for the previous quarter, while the international segment expanded by 20%. Going forward, the strong growth in large strategic customer accounts is expected to push its North American business to get even better. Also, Akamai saw positive business trends in the Asia-Pacific and EMEA, which shows the resilience of its business despite the macroeconomic slowdown.

The Way Forward

Going forward, Akamai is worried about currency fluctuations that could lead to a flat performance in overseas markets although it is positive about its outlook. However, Akamai’s acquisition of Prolexic should be able to deliver strong profit growth in the long run due to an increase in the addressable market. The closure of this acquisition will enable Akamai to enhance its security solutions to protect enterprise applications against DDoS and other malicious attacks. This must improve the company’s product portfolio and moreover open up more markets in the future.

Akamai is in a good position to tap the growth of cloud services with nearly 150,000 servers, spread across 1,200 networks, and spanning over 90 countries. Also, Akamai's efforts have reduced its network costs and it is planning to make improvements in its software and hardware. The company plans to develop a more robust and scalable network management process that would enable it to control costs and expand its services in an efficient manner.

The leading carriers such as AT&T, Orange, Swisscom, Korea Telecom and Türk Telekom are the strategic partners of Akamai. It has also tied up with Qualcomm to deliver 4,000 videos to consumers online. Hence, a diversified client base of Akamai should assist long-term growth.

A Threat

The company shouldn’t feel a lot of heat if Apple rolls out its own content delivery network due to its diversified portfolio. Apple is reportedly building its own content delivery network to deliver apps, video and software according to Dan Rayburn of StreamingMedia. Till now, Apple has been paying Akamai for these services, but now they are in contract renegotiations and pricing terms.

Akamai management is quite confident about grabbing the deal and feels safe about Apple’s thought of going it alone in content delivery. Akamai CEO F. Thomson Leighton in the recent conference call stated, “Any very large media customer at one time or another is looking at a do-it-yourself solution. It’s a lot harder than people think, though.” So, Akamai is not at all worried about Apple building its own CDN network, and its diversified client base will certainly help it perform well in the long run even if Apple moves away.

Conclusion

Akamai Technologies delivers cloud services to big players around the world with a diversified business model. There are certain strong growth drivers for the company in store such as the pending acquisition of Prolexic and increasing demand in key markets. It expects a healthy CAGR of 15% annual growth in earnings over the next five years. Therefore, Akamai looks like a good investment option in the long run.


Rating: 4.0/5 (1 vote)

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