) is a content delivery company that delivers web content for its
customers and also offers other value-added services like
advertising solutions and site acceleration. It competes with other
players like InterNAP Network Services (
), Limelight Networks (
) and Level 3 (
) in this business and delivers close to 20% of global web traffic.
Our price estimate for Akamai stands at $37.11
, which is roughly 10% below market price.
Akamai stands to gain from current data trends. As internet
usage accelerates, Akamai's fundamental business drivers continue
to improve. Notably, mobile data usage is growing at a faster pace
than overall data usage, creating a few unique opportunities (and
risks) for Akamai.
Mobile Data Growth
According to a recent study by Cisco, mobile data traffic grew
by about 159% in 2010. Mobile data traffic could further grow at an
average annual rate of 92% from 2010 to 2015, amounting to 6.3
exabytes per month by 2015. A separate Cisco study indicated that
global IP traffic could increase at an average annual rate of 34%
between 2009 and 2014.
Given the aggressive pace of mobile traffic growth, mobile
networks are likely to face significant congestion and will thus
require technological advancements from content delivery
So where is the opportunity for Akamai? Growth in mobile traffic
is not simply a result of a shift in internet traffic from wired to
mobile networks. What is happening here is that mobile networks
have stimulated higher internet usage, beyond what might be
possible with traditional wireline networks.
This is where the opportunity lies for Akamai. The company
recently announced that it is partnering with Ericsson to speed up
the mobile web service. This deal is aimed at speeding up
e-commerce, banking and enterprise applications.
See our full analysis and $37.11 price
estimate for Akamai
Drag the trend line in the modifiable chart above to see how
changes in revenue per e-commerce (online shopping) customer can
affect Akamai's stock value.
Akamai also acquired Velocitude last year to strengthen its
position in the mobile internet arena. With quite a few
promising initiative on the horizon, what's the risk for
While mobile traffic has accelerated substantially, it still
remains a relatively alien space for Akamai. Mobile traffic growth
is both a result of stimulation of higher internet usage as well as
the shift of some traffic from wireline to wireless networks. This
shift of data usage could pose a risk for Akamai's wireline CDN
business if it does not quickly capitalize on mobile web
So the risk of lower profits in some business segments looms.
Traditionally, companies involved in internet traffic management
have often helped each other out in the wireless internet space. As
The Wall Street Journal notes:
"Companies that handle Internet traffic have long struck
"peering" arrangements, in which they agree to carry each other's
traffic, typically at no cost."
The FCC's net neutrality rules are partial in the sense that
they allow wireless networks to implement methods to control
wireless traffic. As a result, networks could charge additional
fees for faster content delivery, thereby leaving those with small
pockets at a disadvantage.
So how might this play out for Akamai? Will a given company
choose to pay wireless service providers like AT&T (
) and Verizon (VZ) an extra fee for additional bandwidth, or
will they use Akamai's CDN services to leverage its caching method
for faster content delivery? More flexibility in managing data
traffic could also prompt wireless service providers to incorporate
their own CDN-like technologies, thereby providing new competition
Nevertheless, if Akamai can capitalize on the opportunities
sparked by mobile web traffic growth, the company stands to see
upside to its revenue per customer metrics.