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The CDN market may implode but expect Akamai to benefit

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August 13, 2008 – Comments (1) | RELATED TICKERS: AKAM , LLNW , LVLT

 

Dan Rayburn is an astute watcher of the content delivery business and, most days, seems to be as bullish on Akamai as I am. His recent blog post on BitGravity's funding doesn't refer to the investing thesis for Akamai directly but this is nonetheless a striking statement:

"The CDN market is going to be in for a world of hurt in 18-24 months, and most of these CDNs are not going to get acquired or bought out at all, let alone at the kind of revenue multiple investors are dreaming of."

What's unsaid -- but important for us investors -- is that Akamai is going to get its pick of cheap R&D when it buys small yet innovative CDNs that are caught too far behind the leaders.Sell all you want, bears, I'm keeping my shares.

1 Comments – Post Your Own

#1) On August 18, 2008 at 3:41 PM, Internettech (< 20) wrote:

Actually, I think out of the 20 or 30 CDN startups some may combine and at least get 15-20% of Akamai's business since their client list in posted on their website and price is a major issue right now. Another 20 or 30% of Akamai's revenue may churn and will go to Level 3's new CDN and Limelight's CDN and AT&T new CDN offering. As an aside; they are getting their butt kicked on the Olympics with NBC's use of Limelight. Thus leaving Akamai with a few major misses on their revenue targets and the stock will fall to 10 or 12 a share by the end of the year. It's just not worth 3.9 billion. I've read the 6 or 7 major patents they have and the new CDN's are finding their way around them because Akamai's major patents and architecture are based on the needs is of dialup users and small ISPs not broadband. Once customer's realize this they will flock to the lower cost new broadband CDNs and Cloud Computing CDNs to get better page counts, not page misses.

Please don't forget to take a US$250 million write down on the balance sheet for worthless auction rate securities they hold which the CEO and CFO don't want to talk about. Only soft ball questions on the conference call. Write down the securities to fair market value, I say...if you can find someone to buy them since the market place is gone.

Yes I'm a bear on Akamai, but go long on AT&T, Level 3 and if you want a rocket, Limelight. See my post on the cost to duplicate Akamai's servers, it's not a 4 billion market cap it's a 9 to 40 million build depending on the server type for 32000 servers. And Limelight will prevail in court, I've downloaded the opinion. No matter how you cut it Limelight, AT&T and Level 3 are a going to have a field day in the next few years and Akamai will fall like  Internap.

 

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