Akamai is known for helping websites deliver web content fast and securely to web visitors. Visitors to sites served by Akamai receive web content from by a nearby Akamai server rather than the website’s own servers. The company has traditionally charged a premium over what competitors Limelight and Level3 charge for content delivery. This has helped Akamai maintain higher margins and earn more profits.
Lowering Prices to Compete
Akamai is now getting competitive on pricing, especially on video content, to attract more customers and traffic to its network. In some of its recent deals, Akamai has aggressively outbid its competitors on price which has helped the company retain and grow its customer base of media websites.
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Falling Gross Margins
Lower prices result in reduced gross margins for Akamai’s media content delivery business. We estimate that media content delivery constitutes about 26% of the company’s stock price and has margins lower than the company’s overall margins owing to higher bandwidth costs.
Higher Customer Traffic
We do expect that competitive pricing will drive more traffic, offsetting lower revenue generated from reduced prices. Thus revenue per customer is likely to experience an overall positive impact as Akamai’s pricing makes it attractive for customers to deliver more video content through Akamai.
You can modify the three top forecasts for Akamai’s media business to see how changes in Akamai’s pricing can impact Akamai’s demand and its stock price: