Is Akamai’s Operational Efficiency Faltering?

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AKAM: Akamai logo
AKAM
Akamai

Akamai’s operating efficiency, as measured by revenue generated per dollar spent on operating expense, has been decreasing for the past three years and this trend is expected to continue. The company’s revenues from its largest customers such as Apple and Facebook are declining as these technology companies Shift traffic to their own content delivery networks.  As such, they are reducing their reliance on Akamai services. Revenue from Akamai’s six biggest technology companies has come down from 18% of revenue to 11% over the past year. And while this shift appears a permanent one, the company hasn’t yet been able to manage its expenses accordingly.  This can be seen in the table below. We estimate Akamai’s revenue generated per dollar spent on operating activities to fall at a CAGR of 6% between 2013 and 2018.

Akam operating efficiency

Since Akamai’s big customers are utilizing their own systems for data flow instead of outsourcing it, the loss in revenues will continue to pressure the company’s operating efficiency. To counter this, Akamai is banking on a significant improvement in traditional media companies’ video business, to provide a push to its business. However, the company also needs to manage its expenses sensibly, and assess if incremental investments in sales and marketing for the purpose of drawing technology clients’ attention make sense or not.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Akamai
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