Behind the Scenes With Akamai Technologies

| About: Akamai Technologies, (AKAM)

Akamai Technologies (NASDAQ:AKAM) is one of those behind-the-scenes companies that most people never know, yet most of us use its services every day. Akamai helps with the delivery of high-bandwidth content like streaming audio, video, and web-based applications around the globe through its network of 25,000 servers in 69 countries. Akamai says it delivers between 10-20% of all Web traffic. It's a volatile stock and the passion runs deep in both directions, but for tech investors with a high risk-tolerance, Akamai is a company worth knowing.

Started less than a decade ago, Akamai now has revenue of more than half a billion dollars and its customer list features marquee names like Yahoo! (NASDAQ:YHOO), Sony (NYSE:SNE), Apple (NASDAQ:AAPL), MTV Networks (NYSE:VIA), BestBuy.com (NYSE:BBY), FedEx (NYSE:FDX) and GM (NYSE:GM). The stock jumped 8% on Monday after the company announced a new managed service for enterprise applications called IP Application Accelerator. Even so, at $33.92 as of Monday's close the stock is well off its peak near $60 set in February. It's a heavily shorted stock (i.e., speculators betting the stock price will fall) with 10.67 million shares short as of September 14, or 6.7% of its float and 2.25 times average daily volume, according to the latest data from NASDAQ. That's up from 8.8 million (1.7 days to cover) in June.

Akamai's services analyze and manage Web traffic, transmitting content from the server geographically closest to the end user. In addition to faster, more dependable delivery, Akamai provides security and administrative features that give its customers a better experience in using the Internet to reach its customers, business partners, and workforce.

Streaming audio and video is clearly a hot spot these days. Akamai has delivered over a billion songs for its online music store vendors. E-commerce customers use Akamai to sell over $36 billion worth of retail merchandise and software. With an election year and the Olympic games on the near-term horizon, not to mention the proliferation of user-generated video content, demand for Akamai's services is sure to soar. But analysts are also looking for the enterprise application business to become a key source of recurring revenue, which is why Monday's new product introduction made such waves.

Content isn't all that Akamai delivers. The company is expected to deliver 44% growth in Earnings Per Share this year on revenue growth of 46%. The analyst consensus is for EPS of $1.27 this year and $1.67 in 2008, tied to revenue estimates of $625 million and $809 million, respectively. Those are some amazing growth figures, so it's no wonder this stock attracts plenty of attention from investors and speculators.

With the stock down sharply from its peak, AKAM now trades at a trailing P/E of 31 and a forward P/E of just 20.3 using 2008 estimates. The price/sales ratio of 9.8 is still pretty astronomical, yet a fraction of where it's been in the past two years. The balance sheet is in good shape with only 16% in debt. This is a company with a very bright future, and while it's tough to determine what a fair price is to own a piece, it sure seems worth pondering. Keep in mind this stock has a wild history, but it's the present and the future that has investors so excited. Akamai is scheduled to report third quarter earnings on October 24.