Akamai To Witness Revenue Rise From World Cup Streaming

FIFA 2014 world cup is on right now, and there is no doubt that this tournament will showcase how online media consumption has grown over the last few years. Akamai (NASDAQ:AKAM) being a world leader in online content delivery, is bound to benefit from this trend. In this analysis, we attempt to estimate Akamai’s incremental revenues for the second quarter from the delivery of World Cup matches and related content online. Media content delivery accounts for roughly 40% of the company’s value according to our estimates. Media traffic continues to surge as mobile devices proliferate and demand for social media, video streaming and online gaming continues to grow at a frenetic pace. Overall, we believe that Akamai can add incremental revenues of close to $100 million from world cup streaming (including value added services). 

See our complete analysis for Akamai here

Media Content Delivery Is Driving Akamai’s Growth

Akamai is witnessing strong revenue growth across business verticals as well as geographies, despite some macroeconomic concerns in Southern Europe and emerging markets. While online traffic continues to be strong, much of the growth in the recent quarter was led by some unplanned software releases and gaming patches. The sequential growth was especially promising, given the strong holiday season of Q4 2013 and the headwinds from a recent pricing renegotiation with its largest media customer. Akamai’s media delivery business saw its revenues grow by 19% year over year in the last quarter.

Additionally, user demand for high quality content driven by new formats such as 4K and ulta-HD, which require higher bit rates than normal, means that bandwidth requirements are likely to increase significantly in the coming years. With adoption of 4G LTE rising in developed markets and carriers in emerging markets looking to transition to the standard, mobile data usage is also set to surge. According to a recent Cisco VNI report, mobile data traffic grew 81% in 2013 and is expected to grow at a CAGR of over 60% over the next five years. ^[1] Akamai, which delivers 15-30% of all web traffic, stands to benefit hugely from this huge surge in online traffic.

World Cup Streaming Will Help Akamai’s Second Quarter Media Revenues

According to FIFA, approximately 3.2 billion people watched at least some part of the soccer world cup in 2010. ^[2] Additionally, the average in-home viewership for each of the 64 matches stood at a little over 188 million. ^[2] As far as FIFA World Cup 2014 is concerned, 11 matches had concluded by the end of Sunday, June 15. We gather from Akamai’s website that the company’s network saw an average streaming throughput of roughly 2.49 TBPS for these matches. ^[3] Going forward, as more important matches come up with teams entering knock out rounds, we expect the online traffic to shoot up, thus lifting this average. For the purpose of calculation, we assume that the average Akamai throughput for the overall World Cup will amount to 3 TBPS. Given that there are 64 matches, with each match lasting roughly two hours (including the half time break and some commentary time in the beginning and the end of the match), we estimate that Akamai will enable the delivery of total media data of roughly 1.42 billion Giga Bytes. Even at a rate of 3 cents per GB, World Cup streaming will add incremental revenues of more than $40 million for the second quarter. That may be small in comparison to Akamai’s overall revenues, but it will be incremental and thus additive to margins in the short term. It must be noted that the actual incremental revenues resulting from the event are likely to be higher as users tend to watch replays, sports analysis and highlights related to matches. Additionally, the company will gain notably by providing value added services related to the World Cup streaming, which may bring in more revenues than commoditized CDN service.

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1. Global Mobile Data Traffic Forecast Update, 2013–2018, Cisco, February 5th, 2014 [↩]
2. FIFA World Cup: Breakdown of viewership statistics [↩] [↩]
3. Akamai delivered online streaming by match [↩]