Despite Akamai's Tumble, the CDN Industry Is Still Strong

I've never posted news before about the stock price of any particular company (unless it was a new IPO) simply because to me, the fact that a stock went up or down is not news, it happens everyday. But over the past 24 hours, I have received many calls and inquiries from analysts and the media asking me if the fact that Akamai's stock price has fallen nearly $10 a share in the past two days is a sign that the content delivery market for video is slowing down. The simple answer is no.

The fact that Akamai has lost nearly 20% of its market cap in the past two days is reflective of many factors investors attribute to their earnings, growth projections and other factors that I don't even pretend to know all about. While I track the CDN companies very closely, I'm not an analyst in the sense that I don't track companies' P&L the way money managers do, nor do I have the interest in doing that.

The fact that so many analysts, media and industry folks are asking about Akamai's stock price and the content delivery industry shows us just how much people don't truly know about what services vendors provide. These days, everyone thinks of Akamai or references Akamai as "the streaming company" or "video delivery company". Yes, they are. But that is just one of many services they provide.

While we don't know the exact percentage of revenue that content delivery for audio and video provides to Akamai's total revenue, the consensus in the industry is about 40-45% of their total revenue. That would mean last year they did just under or around $200 million for CDN services for audio and video content. And since Akamai did over $400 million last year as a company in total revenue, the other 50+% of their revenue comes from other non CDN products and services like EdgeSuite, Dynamic Site Accelerator, Web Application Accelerator, Electronic Software Delivery and professional 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?

My suggestion? Relax. This is not the first time a company that provides services in the online video industry has seen a major change in their stock price - and it won't be the last time either. The content delivery market is as healthy as ever, and the growth of the consumption of online video - for longer times, more frequently, at higher bitrates and on multiple devices - shows no signs of slowing down.

But I would also suggest that everyone do their homework and become more educated about what services each vendor provides and what percentage of their business is made up from that service. For instance, not a week goes by where someone doesn't compares Akamai's $428.7 million in revenue last year to Limelight Networks (LLNW) $64.3 million in revenue and says Akamai did nearly seven times more revenue than Limelight Networks for content delivery pertaining to audio and video content. That's wrong. They are comparing revenue from products and services Akamai offers against ones that Limelight Networks does not offer. Learn what products and services both companies offer and then compare just those products and services on an apples to apples basis and not the entire company.

It's the same on the network side. People always say Akamai has over 25,000 servers for streaming and video delivery. They don't. They have over 25,000 servers for all of the types of products and services they offer, but not all 25,000 are setup to deliver every type of content. The servers that deliver Windows Media videos via a streaming protocol are not the same servers that are then delivering a Flash video via streaming. Separate servers are required to deliver content for each streaming platform chosen.

What percentage of Akamai's 25,000 servers are setup to support what formats, protocols and geographic locations, they won't say. But if you are going to compare any CDN's infrastructure for streaming to another CDN, then you have to compare the infrastructure that is specific to that type of service. Even if you don't know or the company won't say, you still can get a good estimate if you do some research.

My point: if you are going to compare any vendors in the space one to the other, you have to do it in a fair apples to apples comparison as much as possible, which right now, when it comes to streaming and CDN, is not being done by most analysts and investors.

Comments

[ratsharp]

llnw was recently upgraded by GS to buy from neutral and a top 5 pick.... not surprising considering GS owns 38% of LLNW stock and has 20% of board seats ...