The past year has been very exciting for Akamai (NASDAQ:AKAM). It made four acquisitions: Blaze, Contendo, FastSoft and Verivue. A lot of focus has been on the media content delivery segment of the business. However, we feel the biggest driver of the company is Online Shopping Content Delivery, and we believe this segment has been neglected by the markets and the financial press. Online retail shopping is the fastest growing segment, and we feel this high gross margin sector will consistently grow leading to higher revenues for Akamai.
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What Does Online Shopping Content Delivery Do?
Akamai offers content delivery services to accelerate and improve the delivery of e-commerce transactions over the Internet. Akamai’s e-commerce customers (like Amazon) benefit from high site availability and secure delivery of dynamic content and applications. As an Internet user, you may benefit from Akamai’s service if you are shopping online or using a checkout application. Akamai helps to ensure a richer experience for users while driving lower abandonment of transactions for its customers.
Besides content delivery, Akamai also offers value-added services that help customers in more ways than just delivering their web content faster to users. Some of the examples include helping customers in efficiently placing advertisements, accelerating web applications and providing security to their content.
Online Retail Is The Future
According to shop.org (Digital Division of National Retail Federation), 2012 US online holiday sales are expected to grow by 12% to $96 billion. When compared to the 4.1% growth in total holidays sales estimate, it is safe to say going forward that online retail (e-tail) is the future for retailers, many of whom are facing margin pressure. As e-commerce traffic grows, coupled with more traditional retailers looking to aggressively grow their online presence in a tough economic environment, Akamai is well positioned to benefit from this shift. The company enjoys very high margins in this segment, and we expect it to continue to remain high.
A change in our estimate for Akamai Online Shopping Customers from 2,260 customers to 2,760 customers leads to a near 15% increase in our price estimate. This coupled with higher revenue of $284K per customer in 2013 versus our current estimate of $251K, could driver further upside to this scenario.