Online Videos and Value-Added Services Will Drive Akamai’s Stock

by Trefis Team
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Akamai’s (NASDAQ:AKAM) stock could see an uptick as the amount of video content online increases and more Akamai customers use Akamai’s service to deliver their videos.   In addition, value-added services like content security will help Akamai to earn from its customers.  We have updated our price estimate for Akamai from $22.07 to $25.59 based on the trends observed in its recent quarterly earnings.

Akamai makes money by delivering its clients’ content to the end users through its vast network of servers, enabling faster content delivery over the Internet. For example, ESPN uses Akamai’s servers to deliver a part of its content to its users instead of using its own server.

Below we discuss how the increasing shift to online video content and demand for value-added services will boost Akamai’s business in the future.

Online Videos More Prevalent

The amount of video content available online is increasing as services like Netflix and sites like YouTube and Hulu increase their catalog of content.

Netflix (NASDAQ:NFLX) is increasing its online movie catalog and encouraging users to stream videos online.  Cable companies like Comcast (NASDAQ:CMCSA) have introduced online on-demand video content to attract viewers, while Microsoft’s (NASDAQ:MSFT) game console X-Box 360 has multi-media capabilities that enable you to download arcade games and TV shows via its Xbox Live service.  These developments indicate increasing demand for high performance in the media content delivery space, especially for HD content.  We believe that Akamai is well positioned to benefit from this rising trend.

We estimate that Akamai’s Media Content Delivery business constitutes about 27% of the company’s value.  We expect Revenue per Media Business Customer to reach $561K by the end of Trefis forecast period.  Below you can see how the trend discussed above can impact Akamai’s stock if Revenue per Media Customer were to increase more than we forecast.

Increasing Demand for Value-Added Services

More than 50% of Akamai’s revenues can be attributed to its value-added services like advertising decisions, application performance, and dynamic site solutions that the company offers its customers in addition its content delivery service.  As cloud computing picks up and as more business and applications move online, the demand for performance as well as security will rise.  This, in turn, will drive demand for Akamai’s value-added services.

Over 75% of Akamai’s customers buy at least one value-added Akamai service and this has been the prime driver of growth for its online shopping content delivery business (36% of Akamai’s stock price).  You can modify our forecast below to see how Akamai’s stock would be impacted if Akamai earned even more from each online shopping customer as a result of value-added services.

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