Akamai Technologies, Inc. (AKAM): Sell the Shovel and Forget the Gold

Page 1 of 2

During the Klondike Gold Rush there were two ways to get rich. You could spend your days in the cold, searching for gold, or you could sell shovels. Selling shovels isn’t very exciting, but it is a safe and secure way to consistently make money. Akamai Technologies, Inc. (NASDAQ:AKAM) has taken this philosophy online. It runs one of the world’s best content delivery networks (CDNs) and provides the infrastructure that modern companies need to profit online.

Akamai Technologies, Inc. (NASDAQ:AKAM)

Why Invest in a CDN

Developing a world class network of servers and data centers isn’t cheap. A CDN provider like Akamai Technologies, Inc. (NASDAQ:AKAM) does the hard work of building out its network and then charges customers for its use. Only the largest companies like Google Inc (NASDAQ:GOOG) are able to front the capital and personal costs to make their own quality CDN network.

Video is eating up more Internet traffic and increasing bandwidth needs. At the same time, consumers don’t want to wait for sites to load and simply abandon slow websites. Companies are moving more of their computing into the cloud. While this helps decrease costs, it also gives more computing power to hackers. Akamai Technologies, Inc. (NASDAQ:AKAM) deals with all of these issues by helping companies deliver their content quickly through their CDN, and filter traffic to help defeat malicious attacks.




AKAM Total Return Price data by YCharts

The Competitors

Level 3 Communications, Inc. (NYSE:LVLT) is similar to Akamai Technologies, Inc. (NASDAQ:AKAM). Level 3 stores and processes customer data with their collocation and data center services, then helps to transport that data with their transport and fiber division. The company owns over 35 thousand miles of subsea cable. In the past decade it has had a number of issues as it tried to expand through acquisitions and subsequently diluted its stock.

In order to regain profitability, Level 3 Communications, Inc. (NYSE:LVLT) is trying to place more emphasis on the enterprise sector. This should help it get out of the commoditized wholesale sector and offer more value-added services. Still, the company is a work in progress. Apart from its subpar return on investment of -3.8%, its EBIT margin of 6.3% and total debt to equity ratio of 7.71 do not inspire confidence. It is easy to hope that Level 3 Communications, Inc. (NYSE:LVLT) is able to turn things around, but years of negative momentum are hard to erase.

InterNAP Network Services (NASDAQ:INAP) makes the majority of its revenue from its datacenter services, but it also offers IP services on the side. Its IP services division holds the company’s CDN services, and it looks like Akamai Technologies, Inc. (NASDAQ:AKAM) is eating InterNAP Network Services (NASDAQ:INAP)’s lunch. Internap’s IP services are declining. Given the pricing pressures in the CDN world and large capital requirements, Internap’s 2012 sales of $274 million place it at disadvantage relative to Akamai Technologies, Inc. (NASDAQ:AKAM)’s 2012 sales of $1.374 billion.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

The 10 Cheapest Places to Retire Abroad

Top 10 Most Expensive Luxury Cars in the World – 2014

Killer Small Business Ideas

The 50 Best Personal Finance Blogs

Most Expensive Apartments in New York City

Bloodiest UFC Fights Ever Fought

Most Expensive Rum Brands in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!