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
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

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!