Velocitude Deal Should Boost Akamai’s E-Commerce Revenues
Akamai (NASDAQ:AKAM) operates a worldwide network of servers that help customers like Yahoo (NASDAQ:YHOO), Overstock.com (NASDAQ:OSTK), and Monster.com (NYSE:MWW) deliver Internet content faster to their end users.
The company has established itself as the market leader in web content delivery to traditional computing devices like laptops and desktops. As mobile devices become more popular across the globe, Akamai is pushing into mobile content delivery, which is expected to be one of its prime growth engines going forward.
To this end, Akamai recently acquired Velocitude, a company whose mobile platform delivers a friendlier browsing experience to a multitude of mobile devices. (The terms were not disclosed.) The acquisition adds significant content transformation functionality to Akamai’s suite of cloud services for optimizing mobile web content. We expect Akamai’s revenue per online shopping customer to increase as a result of this deal. Our analysis follows below.
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Rise of the mobile Web
Globally, the mobile Internet user population is expected to surpass desktop Internet users in next five years, according to recent research by Morgan Stanley. Mobile e-commerce revenues in the U.S. are expected to reach $23.8 billion by 2015, representing an average annual growth rate of close to 65%.
This growth will be driven by accelerating smartphone adoption. With their user-friendly interfaces and hordes of applications, smartphones have enabled easy access to the mobile Internet. An increasing number of users are using these devices to research products and make purchases. Smartphone sales are likely to account for 66% of mobile handset sales in the U.S. in 2015, according to Coda Research Consultancy.
Faster networks help Akamai
With AT&T improving its 3G network speeds, WiMax being rolled out and the 4G LTE network technology on the horizon, mobile Internet usage is likely to grow quickly. Higher speeds will stimulate usage of data-intensive applications such as e-commerce and HD video.
Faster networks should broaden the scope for Akamai’s content delivery and optimization services. As more customers use smartphones to make purchases, we expect Akamai’s revenue per online shopping customer to increase. You can drag the trend-line in the chart below to see how this metric impacts Akamai’s share value.
Akamai can leverage Velocitude’s platform to optimize mobile content
Today, most websites are not configured for optimal viewing on mobile devices, according to research by the Nielsen Norman Group. Velocitude’s mobile technology transforms websites so that they display properly on a vast range of mobile devices. By acquiring Velocitude, Akamai improves its ability to serve the mobile Web.
You can see the complete $27.37 Trefis price estimate for Akamai’s stock here.