) is leader in content delivery and value added services business.
The company not only operates a global network of servers that help
large websites like Yahoo (
) and Monster (
) deliver content to their end users, but also makes significant
money from value added services that enhance website performance
We currently estimate Akamai's price to be
, which is about 35% below current market price of about $48. The
company's stock price has increased significantly over the past 9
months given the success of its value-added services and overall
solid revenue growth.
So how can Akamai justify its current market price on valuation?
To justify its stock price, Akamai must position itself to triple
revenue per customer figures for media and e-commerce (online
shopping) verticals by the end of our forecast period.
Can Revenue per Customer for Prime Growth Engines Really
Akamai's prime growth engines, media and e-commerce together
constitute more than 60% of the company's value by our estimates.
Given the explosion of media content over the internet and success
of Akamai's value-added services, it is reasonable to assume that
investors are primarily placing their bets on these two categories.
Assuming Akamai continues to grab customers at our forecasted rate,
the company would need to triple revenue per customer for
verticals by the end of our forecast period to lift our valuation
to its current $48 stock price.
Can this really happen? Below we explore this scenario.
Drag the trend-lines in the charts below to see the affect of
various revenue per customer scenarios on Akamai's stock
Explosive Web Traffic Growth - Supportive
Cisco estimates that internet traffic will increase more than
four-fold by 2014, amounting to 64 exabytes per month. The growth
is likely to be fueled by increasing affordability of devices like
computers, proliferation of smartphones & tablets that promote
data usage as well as growth in cloud computing.
According to Internet World Stats, the number of global internet
users grew by 13% in 2009 amounting to 1.7 billion. Additionally it
is estimated that the number of online videos viewed in 2009
increased by a whopping 120% amounting to 300 billion.
One can argue that given the expected four-fold rise in web
traffic from 2009 to 2014, it may not be totally unreasonable to
think that Akamai could increase its revenue per customer by 3-fold
even if one accounts for some pricing declines as a result of
But we have a few reservations regarding this scenario.
Can Akamai grab a steady share of the increasing web traffic or
might this be directed somewhere else? We anticipate that Akamai's
revenue rise will not grow linearly alongside the expected increase
in internet traffic. Akamai has diversified from being just a
pure-play CDN vendor to a company that earns half its revenues from
If CDN revenues triple based on explosion in web traffic, can we
expect value added services to keep pace? Will they be able
to increase linearly with web traffic too? This might also prove to
be an ambitious assumption.
Let us know your thoughts on Akamai's growth prospects by
providing feedback in the comment box below.
You can see
the complete $31.11 Trefis price estimate for
Akamai's stock here.