Akamai Technologies Inc.
) has agreed to acquire Verivue, a provider of IP platforms and
solutions for network operators. The acquisition will enable
Akamai to strengthen its cloud infrastructure solutions
portfolio. Akamai expects to close the deal by the end of this
year, but the financial details were undisclosed.
Verivue's solutions enable faster delivery of content for
network service providers. Verivue, with its OneVantage Content
Delivery Solution, provides a compact and cost-effective content
delivery network ("CDN") infrastructure solution for network
providers. Verivue's global distribution partners include Nokia
Siemens Networks, Ericsson, NISSHO ELECTRONICS and Arris.
Along the same lines, Akamai had acquired FastSoft (in
September 2012) and Cotendo (late 2011). We believe that these
acquisitions not only broaden Akamai's CDN solutions portfolio,
but also provide the company with a significant competitive edge
over other established CDN providers such as
Limelight Networks Inc.
Level 3 Communications Inc.
). Akamai can also enjoy competitive advantage over new entrants
Verizon Communications Inc.
They will also have a positive effect on Akamai's cloud
optimization solutions. Cloud infrastructure solutions
contributed approximately 58% of Akamai's total revenue in the
third quarter of 2012. While revenue from cloud infrastructure
solutions increased 22.0% year over year, content delivery
solutions jumped 23% year over year driven by increased demand
for optimization, performance and security solutions, and strong
On a positive note, Gartner expects the cloud services market
to grow over 3 times by 2015 to $177.0 billion. According to
market research firm IDC, spending on public cloud services is
expected to reach $100.0 billion by 2016. This tremendous growth
potential and the rapid adoption of cloud technologies will
particularly help Akamai's enterprise business in the long
Akamai has a strong presence in the content delivery market.
However, intense competition has forced it to lower the price of
its content delivery network services, particularly the digital
media services, which will hurt its margins. Moreover, increasing
total bandwidth costs remain a headwind for Akamai in the long
We maintain our Neutral recommendation on Akamai over the long
term (6-12 months). Currently, Akamai has a Zacks #2 Rank, which
implies a short-term Buy rating.
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