Why Expansion In Canada Is A Good Move For Akamai

+5.80%
Upside
110
Market
116
Trefis
AKAM: Akamai logo
AKAM
Akamai

Content Delivery Network (CDN) giant Akamai (NASDAQ:AKAM) recently announced the opening of its Toronto sales and services office. [1] According to the press release, this new office “will support employees focused on sales, services, engineering, and security, and will complement Akamai’s existing Ontario location in Ottawa.” We believe that expanding business operations in a country other than the U.S. is an excellent move by Akamai and this could lead the way for an enhanced focus on other international markets.

See our complete analysis for Akamai here

Relevant Articles
  1. Akamai Stock Has Seen Little Change Since 2021. Will A Q3 Earnings Beat Drive The Stock Higher?
  2. What To Expect From Akamai’s Q2 Earnings?
  3. Cloud Business In Focus As Akamai Reports Q1 Results
  4. Will Akamai’s Cloud Computing Push Pay Off?
  5. Up Almost 6% Last Month, Can Akamai Continue Its Run?
  6. Here’s Why Akamai Stock Has Failed To Outperform The S&P Since 2017

Why Inceasing Size Of Operations In Canada Makes Sense

Akamai already has a foothold in Canada and provides its services to clients from various domains such as media & entertainment, manufacturing, financial services, health care, public sector, and commerce. Canada has more than 33 million Internet users, with nearly 95% of its total population having access to the Internet. [1] Even though US has the fastest average connection speed (11.1 Mbps) in North America, Canada (10.7 Mbps) has closed the gap to less than 0.5 Mbps. [2] The country’s high broadband (connections greater than 10 Mbps) adoption rate and 4K readiness rate (connections greater than 15 Mbps) have increased by 589% and 710% respectively in the last five years. [1]

User demand for high quality content in high-speed formats, which require higher bit rates than normal, means that bandwidth requirements are likely to increase significantly in the coming years. A big factor in the growth of Akamai’s media delivery business is the surge in the consumption of streaming video on the Internet. According to Nielsen, video consumption on the Internet grew by around 60% in 2014. [3] The time spent consuming content through video streaming is only 7.6% of the time spent watching content on TV. Hence, there is ample opportunity for the streaming medium to grow as consumers increasing shift preferences from traditional TV to Internet video.

Why Akamai Should Enhance Its Focus On International Growth

Akamai’s revenues have grown at a rapid pace in the past few years, clocking a growth rate of around 15%, 18% and 25% in the years 2012, 2013 and 2014, respectively. [4] However, Pure-play CDN business is becoming increasingly commoditized. Akamai is facing increased competition from rivals such as Level 3, Limelight, Edgecast, and Amazon, which has heightened CDN pricing pressure in recent years. Akamai is keeping the pricing pressure at bay by improving its value added services through new launches and acquisitions. In addition to this, the company can also look at venturing into other countries more aggressively.

The revenues from international markets have traditionally remained relatively low, standing at 27% for 2014. The Company is not organized on the basis of the markets it operates in and continues to be managed and operated as one business across all geographies. An enhanced focus on international markets and decentralization of authority could lead to better growth opportunities. There is ample scope for the company to expand its operations as global internet speeds and media consumption have been increasing steadily over the past decade. Akamai’s quarterly ‘State of the Internet’ reports indicate that global average internet connection speeds crossed the threshold of 4 Mbps [5] for the first time in Q2 2014 and stood at 4.5 Mbps [2] in the fourth quarter. Additionally, there are several countries with average Internet speeds of over 15 Mbps, a threshold for 4K (ultra HD) readiness. Akamai could aim to increase the magnitude of its operations in such countries in order to cater to the enhanced volumes in internet traffic.

View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research

Notes:
  1. Akamai Expands Business Operations in Canada, March 27, 2015, Akamai Press Release [] [] []
  2. Fourth Quarter 2014 ‘State of the Internet’ Report, Akamai [] []
  3. THE TOTAL AUDIENCE SERIES – Q3 2014, Nielsen []
  4. Akamai’s SEC Filings []
  5. Second Quarter 2014 ‘State of the Internet’ Report, Akamai []