Media Content Delivery Becomes Largest Value Driver for Akamai

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Akamai ( AKAM ) is a content delivery company that delivers web content for its customers besides offering additional value added services like advertising solutions and site acceleration. It competes with other players like InterNAP Network Services ( INAP ), Limelight Networks ( LLNW ) and Level 3 ( LVLT ) in this business and delivers close to 20% of global web traffic. Our price estimate for Akamai stands at $37.11 , which is about 23% below the current market price.

The company recently released its Q4 2010 earnings, and we have increased our price estimate to $37.11 based on continued fast growth in revenues across all verticals. Our new estimates value the media content delivery segment as the most valuable for Akamai. We previously had e-commerce as the most valuable segment, but the rebound in media revenues has impressed us leading us to change our forecasts and the way we view this business.

We now estimate that media vertical constitutes 34% to Akamai's value compared to 31% for e-commerce (online shopping) . The revenue rebound has been significant in 2010 with both customers and revenue per customer growing.

Media Growth Impresses

For Akamai, revenues from media content delivery segment grew by 25% in Q4 2010 compared to same quarter a year ago and 10% sequentially. The company stated it is witnessing growth in digital media content and that traffic volume growth is being driven by an increasing number of long-form entertainment (e.g. movies) moving online and the amount of HD video increasing. The company also renewed multi-year deals with 80% of its top 10 customers including Netflix. For Netflix, the company will be supporting its streaming both domestically and internationally.

A recent study estimated that at peak times, Netflix constitutes about 20% of U.S. internet traffic. This is a huge figure and depicts the extent of the impact that this type of entertainment can have on internet traffic. Akamai expects media traffic to increase several times over in the future and plans to scale its network accordingly.

Do you agree and think that media growth will overshadow e-commerce growth which also benefits from several value added services? You can modify our forecasts to see how faster or slower growth in the media vertical can impact Akamai and leave comments below.

You can see the complete $37.11 Trefis price estimate for Akamai's stock here.



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



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: AKAM , INAP , LLNW , LVLT

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