Cloud Security Strength Can Help Akamai Revenues Surpass $3 Billion Next Year

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Akamai Technologies‘ (NASDAQ: AKAM) has seen a notable reversal in its fortunes since Elliott Capital Management invested in the company. Not only has the company’s stock performance been looking up, but its financial performance has also improved. In particular the company’s cloud security business has been growing consistently, even as business from internet-platform customers has stabilized. Trefis highlights trends in Akamai’s revenues over recent years along with our forecast for 2020 and 2021 in an interactive dashboard.

We maintain a $87 fair value for Akamai’s stock – with cloud security expected to be the primary driver for the company’s value. You can modify any of the key drivers to visualize the impact of changes on the company’s valuation. Additionally, you will find more Trefis information technology data here.

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A Quick Overview Of Akamai’s Business Model

What Need Does It Serve?

  • Akamai’s core business of content delivery (through caching customer data to minimize latency) has seen competition from some of its largest customers over recent years (including Amazon, Apple, Facebook, Google, Microsoft, and Google).
  • However, the reach and technical strength of Akamai’s network has allowed it to become an important player in the growing edge computing market. Building upon the reliability of its network, and keeping in mind the increasing security risks emanating at the edge, security has been a natural value-add for Akamai’s product portfolio.
  • Also, the company’s distributed platform helps it reach over 130 countries. Akamai’s access to the flow of traffic across the internet has helped it gain invaluable insights, which it then used to build its security business.

What Are The Alternatives?

  • Content delivery networks (CDNs) are important for reducing latency. This has given rise to large internet players such as Amazon, Apple, Facebook, Google, Microsoft, and Google having their own CDNs.
  • Third-party players similar to Akamai include Level3, Limelight, CDNetworks, and Fastly.

Understanding Akamai’s Revenues

Akamai’s two divisions (1) Media and Carrier Division, and (2) Web Division, expected to contribute roughly $1.3 billion (45%) and $1.6 billion (55%) to its Total Revenue estimate of $2.9 billion for full-year 2019

  • Media and Carrier Division: This division offers products and services to media and carrier segment customers. Division revenue growth over the last couple of years has been due to increase in web traffic and the sale of cloud security solutions.
  • Web Division: This division offers products and services to web customers. Division revenue growth over the last couple of years has been due to increase in the sales of cloud security solutions such as Kona Site Defender, Prolexic and Bot Manager.

[A] Media and Carrier Division Revenue growth of about $51 million over the next two years will be be driven by growing internet traffic and cloud security solutions

  • Media and Carrier Division revenue increased by $59 million over the last couple of years.
  • Over the next couple of years, increasing online traffic is likely to lead to a growth of $51 million.

[B] Web Division Revenues to grow by about $272 million over the next two years due to growth in cloud security offerings.

  • Over the last couple of years, the $308 million increase in revenue has been driven by incremental adoption of the company’s cloud security solutions.
  • Over the next couple of years, the incremental $272 million is likely to be derived from sale of cloud security solutions. What differentiates Akamai’s value proposition is its wide reach.

 

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