The internet is bubbling over with content. A logical bet on this macro trend is investing in content distribution networks — CDNs.
However, if you thought you could simply throw your cash into the highest quality player in the space and close your eyes for a decade, you may want to think again.
Akamai Technologies (NASDAQ:AKAM) has been a Wall Street darling for several years. But the stock is looking shaky after the company’s most recent earnings announcement.
The major problem Akamai’s share valuation faces is simple market maturity. This means the company has had huge margins in a nascent business market, but now competitors such as Limelight Networks (NASDAQ GM:LLNW), Level 3 Communications (NASDAQ:LVLT), and Bit Gravity (NYSE:TCL) are getting up to speed and driving down prices.
To make matters worse for “the Cadillac of CDNs with Ferrari prices,” telecommunications companies are getting into the content distribution game. That means deep pocketed competitors such as AT&T (NYSE:T), Verizon (NYSE:VZ), and Sprint (NYSE:S) will soon be deploying armies of salespeople to steal more business from Akamai like Limelight did to Akamai’s prized Netflix (NASDAQ:NFLX) account.
Also, Akamai has been able to levitate their price-earnings ratio on tons of M&A rumors. But this weekend’s Bloomberg-Businessweek article should deflate that buyout premium because Akamai CEO Paul Sagan said, “He thinks the company is better off on its own, free to market to and partner with anyone rather than be handcuffed by a parent company’s strategic goals.” So much for trader dreams of a savior such as Google (NASDAQ:GOOG), Cisco (NASDAQ:CSCO), or Apple (NASDAQ:AAPL).
In the meantime, all is not lost at Akamai. The company is getting involved in data storage for e-commerce websites, security for credit card companies like Visa (NYSE:V) or Mastercard (NYSE:MA), and the company will continue to benefit from the the video content market’s breakneck growth.
Regardless, one thing’s for sure: Akamai’s stock will need a ton of support to prevent rolling over into the next phase of a company’s textbook life cycle.
What do you think about Akamai? Be heard by our community in the comments below …
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