Akamai Could Accelerate Growth of Online Shopping Customers


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The number of Akamai's ( AKAM ) online business shopping customers has been rising and we expect the growth to continue driven by increasing broadband penetration, sustained e-commerce growth, and Akamai's vast distribution and competitive pricing.

Akamai operates a global network of servers that help large online shopping retailers like Amazon, Nordstrom, Foot Locker, and consumer-focused companies like Cathay Pacific, Audi, and Best Buy deliver content to their end users. It competes with players like InterNAP Network Services ( INAP ) and Limelight Networks ( LLNW ) in the online content delivery business.

While we expect Akamai's online shopping client list to increase to 2,550 by 2016, the Trefis community predicts more accelerated growth to over 3,300, representing an upside of 9% to our price estimate for AKAM.

We currently have a Trefis price estimate of $31.11 for Akamai's stock , about 38% below the current market value of $50.

Sustained E-commerce Growth

The penetration levels of online media as well as electronics & general merchandise (EGM) in the US are rising. This can be attributed to several factors: advancement in online security through use of encryption, increasing broadband penetration, lower costs of setting up online business, continued brick-and-mortar expansion into online venues, and popularity of online retail among younger demographics.

Strong Distribution and Competitive Pricing Benefits Akamai

Akamai has a vast number of servers distributed over hundreds of networks, cities, and countries, which enables Akamai's infrastructure to be within the last mile, irrespective of where a customer is located. This difference in Akamai's approach vs. the centralized data center approach taken by many of Akamai's competitors is what sets the company apart and affords significant advantages in terms of driving better speed, scalability and reliability, in addition to lower cost.

Akamai has historically charged premium prices to its customers for fast and secure delivery of their web content. However, the company is becoming  increasingly competitive on pricing, particularly on video content, in an effort to attract more customers and traffic to its network.

Trefis Community Forecast

The Trefis community predicts that the number of Akamai online shopping business customers will increase from 1943 in 2010 to 3308 by 2016, compared to the baseline Trefis estimate of an increase from 1734 to 2553 during the same period. The community estimates imply an upside of 9% to the Trefis price estimate for Akamai's stock, although we remain well below current market price.

Our complete analysis for Akamai's stock is here .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Investing Ideas , Stocks , US Markets
More Headlines for: AKAM , INAP , LLNW

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