Akamai Gets Boost From Online Social Gaming

Jun.30.10 | About: Akamai Technologies, (AKAM)

Akamai (Nasdaq:AKAM) operates a global network of servers that help large websites like Yahoo (Nasdaq:YHOO) and Monster.com (Nasdaq:MNST) deliver content to their end users. Acting like an air traffic control system for the Internet, Akamai’s technology provides faster, more reliable downloads of shopping, media, gaming and other content. We estimate that Software & Game Content Delivery constitutes around 16% of the $27.37 Trefis price estimate for Akamai’s stock.

Akamai caters to many big retailers, media and gaming companies and numerous e-commerce websites. We expect the company’s Software & Game Content delivery business revenues to get a significant boost from the growing popularity of online gaming on social media networks such as Facebook and MySpace. Here’s why:

Social Online Games Gain Traction

Trendstream and Lightspeed Research estimate that 25% of U.S. Internet users aged between 16 and 64 played social games in February 2010. This represents nearly 40 million users based on eMarketer’s estimates of 160 million total Internet users in the U.S.

Social media networks such as Facebook and MySpace, which provides a platform for people across the world to socialize, are gaining tremendous popularity. Taking advantage of this shift, a number of gaming companies are developing social online games. Companies such as Zygna (which offers popular games like Mafia Wars and Farmville on Facebook) are leveraging social media platforms by offering a casual environment for gaming.

Online Gaming Developers Benefit from Akamai’s network

Several social gaming companies use Akamai’s network to deliver their content. One is Mindjolt, a rapidly growing company in the social gaming space that aims to become a leading platform for independent developers to reach a wide audience. The company already offers more than 1,300 games on social networks like Facebook, Mindjolt.com and Myspace. Mindjolt uses Akamai’s network to reach its end users and to maintain high performance and scalability.

Similarly, PopCap and Perfect World Entertainment rely on Akamai’s network to deliver their gaming content to users. Akamai handles close to 1.1 petabytes of monthly traffic for PopCap, whose traffic has more than quadrupled since the launch of its “Bejeweled” game on Facebook.

Akamai Can Boost Software & Gaming Content Delivery Revenues by Leveraging Growing Social Online Gaming Space

We predict that Akamai’s ability to handle massive online traffic will help it leverage growing demand for social online gaming, gain new customers, and improve its revenue per customer. We forecast that Akamai’s software and gaming client list will grow at an annualized rate of 3.5%, from just under 550 in 2009 to about 700 by the end of theTrefis forecast period. An additional 2% increase in this growth would create nearly 2% of upside to our price estimate of $27.37 for Akamai’s stock.

In addition, we expect sustained growth in Akamai’s revenue per software and gaming customer. We expect this figure to reach $486,000 by the end of our forecast period, up from $320,000 today. Below you can see how Akamai’s stock is impacted by changes in its revenue per software and gaming customer. An additional 2% growth compared to our current forecast can add a 2% upside to Akamai’s stock.

Disclosure: None