Akamai’s Troubles: Much Ado About Nothing
By internet standards, Akamai Technologies is an old company; by the standards of Wall Street, a select pool of analysts that cover the company, and CxOs that move in the circles of public companies—including one I recently interviewed—Akamai is a very young company. So it shouldn’t come as a big surprise that, when Akamai’s recent quarterly earnings report was released, the company suffered stock value whiplash.
Beyond the hype of the company’s stock price diving almost 20% the following day, what was reported as Akamai’s outlook for growth is a bit worrying to the content delivery network (CDN) market as a whole.
Akamai continues to lose valuation, trading down to $35 per share today compared to $50 per share on July 19. But that doesn’t necessarily mean the CDN market as a whole is in jeopardy, although one of the key fallouts of Akamai’s troubles has been for analysts to question whether or not the CDN market is cooling, especially given Akamai’s leadership in the space and its earnings guidance that it will see slower growth in its CDN business.
Some industry leaders say Akamai’s troubles are not a cause for overall concern. StreamingMedia.com EVP Dan Rayburn, for example, in his BusinessOfVideo.com blog, addresses the Akamai issue head on, saying that it’s not a sign of weakness in the CDN sector.
"Consensus in the industry is [CDN revenues comprise] about 40-45% of [Akamai’s] total revenue," says Rayburn. "That would mean last year they did just under or around $200 million for CDN services for audio and video content with the other 50+% of their revenue coming from other non-CDN products and services. But when Akamai's stock drops nearly $10 a share, why is it that no one is asking about those products and services and those industries? Why is it that so many assume that the CDN product line and the video industry is at the root of the problem?"
While the guidance was indeed lower, I agree with Dan that Akamai’s guidance and its subsequent impact on the overall CDN market and the search for the next "Wall Street darling" are two completely different things.
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