Akamai (
AKAM
) operates a global network of servers that help large websites
like Yahoo (
YHOO
) and Monster (
MWW
) deliver content to their end users. The company's stock has
doubled from its market price of close to $25 to current price of
close to $50 in last 7 months. We maintain our Trefis forecast
price of $28.38.
We believe that Akamai's current market price may not reflect
the fundamentals of the company. More specifically, we believe that
high market price compared to our price estimate is essentially a
result of market's high expectation of growth of e-commerce and
media verticals.
High market expectations from value added
services
We estimate that
Akamai's online shopping (e-commerce) customer
count
will grow from little over than 1,600 in 2009 to more than 2,300 by
the end of our forecast period. This reflects continuation of rapid
growth being observed in the recent past.
Moreover, we also expect
revenue per online shopping customer
to increase to $270,000 by end of our forecast period compared to
$170,000 in 2009. We believe that Akamai's success with
value-added services in recent quarters, primarily in online
shopping segment (e-commerce), has generated tremendous
expectations amongst investors and has played its part in
propelling the stock. However it must be noted with caution that
value-added services are a very profitable business for Akamai and
such profits will act as strong incentive for competitors to
develop their expertise in this field and challenge Akamai over
time.
High market expectations from online media
The current Akamai price also reflects very high expectations of
investors in media business. With proliferation of online video,
Akamai stands to gain from the trend. Growth of HD video will
further expand Akamai's revenue opportunities. However we have
already priced this expected high growth in our estimate and we
believe that market expectations are inflated, driven by certain
recent successes in the field of online media.
These include record data streaming during the recent FIFA World
Cup, Netflix's online content content acquisition spree, new online
subscription and pay per view video platforms on Hulu and Youtube
that are currently being tested, expansion of streaming into a host
of mobile and stationary devices and emergence of tablet computers.
Although we should see rapid growth in online media, it will be
unreasonable to expect it to replace pay-TV anytime soon.
You can see
the complete $28.38 Trefis price estimate for
Akamai's stock here.