The market appeared as if it wanted to go higher on Tuesday following a positive start but harsh criticism from China kept the bulls in check. There is a lot of underlying stories concerning the Fed’s accommodative monetary policy, some good, most bad, and the end results won’t be known for years.
China is the world’s largest holder of U.S. debt and the market slipped after their country’s version of Moody’s (MCO, $27.81, down $0.26), Dagong Global Credit Rating, cut its credit rating on the U.S. to A+ from AA.
More specifically, Dagong said a “deteriorating debt repayment capability and drastic decline of the government’s intention of debt repayment” was the reason for the downgrade. We can go with that but it’s hard to believe Moody’s is still in business and we can’t wait to short this name again down the road as it nears it 52-week high.
The news impacted the dollar, which had been weaker, as it reversed its losses and started to gain strength throughout the day. We have been mentioning this correlation between a rising market and a falling dollar and that theme is still in play. At some point it won’t be but for now it is. The dollar traded down to its 2010 lows last week but has bounced 3% since.
As a result, the Dow fell 60 points, or 0.5%, and finished at 11,346. We mentioned one blue-chip company yesterday, Bank of America (BAC, $12.27, down $0.33), which had been rallying, fell 2.6% yesterday and we said not to trust it until shares break $14.
The S&P 500 gave back a 10 spot, or 0.8%, and settled at 1,213. The index held the 1,200 level which will be crucial to help sustain the momentum from last week’s rally.
The Nasdaq touched a new 52-week high of 2,592 but ended with a loss of 17 points, or 0.7%, to finish at 2,562. We have been calling for a test of 2,600-2,700 for the index and that could come this week if Cisco Systems (CSCO, $24.35, down $0.04) impresses Wall Street. The company will announce earnings after the close today.
Although the bears got a victory yesterday, no real technical damage was done.
Shares of Akamai Technologies (AKAM, $51.56. down $2.58) fell 5% on Tuesday after Netflix (NFLX, $170.46, up $1.33) went back to doing business with some of its former partners. Apparently, Netflix hasn’t been too happy with Akamai’s web-content delivery for their subscription based movie-renting business model.
Netflix is obsessive in making sure their customers have the BEST performing instant-streaming content and Akamai seems to be dropping the ball. Netflix uses multiple content-delivery networks or, CDNs, to stream video and multimedia content on the Web and Limelight Networks (LLNW, $7.74, up $1.14) and Level 3 Communications (LVLT, $1.05, up $0.17) each surged 17% and 19%, respectively, after word spread that they were getting a bigger piece of Netflix’s pie.
We have covered this story in the past and here were our thoughts nearly two years ago from an article we wrote concerning the 3 companies. We have left the “old quotes” in to reflect the research (quotes from 2/8/09)…
“Akamai provides the technology (content-delivery networks or CDNs) used to stream video and multimedia content on the Web. It is by far the Ace of Spades when it comes to the CDN market commanding nearly 70% of the market share. That number may have changed since my last update and is hotly debated but you get the picture.
Akamai has been on both sides of the earnings surprise and had a string of beating earnings estimates up until last year. There’s a fine line between reporting “in-line” numbers and beating expectations and Akamai has been able to hold up well during the economic downturn.
Although the stock can be volatile and is prone to large swings, Akamai’s biggest customers include Apple (AAPL, $99.72, up $3.26), FedEx (FDX, $55.27, up $2.69), Microsoft (MSFT, $19.66, up $0.62), Viacom (VIA, $18.12, up $0.87), and XM Satellite Radio (SIRI, $0.12, down $0.03). Content delivery is an area that is attracting a lot of attention and Akamai is certainly benefitting from Apple’s iPhone and Research in Motion’s smartphones.
This means Akamai will help deliver high-bandwidth online content, like YouTube which you may have seen in Apple’s commercials for the iPhone. Akamai should continue to drive incremental revenues, not like in the past but online sales are still expected to grow 11% in 2009, and over time this will help the bottom line.
As far as Akamai’s top competitors goes, there’s no need to mention it in conversation. Competition from the likes of Limelight Networks (LLNW, $3.33, up $0.16) and Level 3 Communications (LVLT, $0.99, up $0.07) hasn’t been serious enough to take away major market share.
Think of Akamai dominating the market with its content delivery the way Apple dominates the market when it comes to music and the iPod. The real growth for Akamai will be online video where the market is just beginning. Most videos are still viewed on the TV but the trend is shifting.” (NYSE:END)
We wanted to show this article because we want you to be able to search our entire website for stories or companies that may be of interest. Looking back at this article can provide some valuable research. First, it’s hard to believe XM Satellite Radio is at $1.50 a share but the company seems to be making a comeback. And second, Limelight Networks could be a stock (or option trade) worth watching going forward.
The company become public in mid-2007 at an offering price in the low $20′s and has posted some lousy quarterly earnings over the past year. However, last week, they reported Q3 revenue of nearly $50 million and profits of $300,000, or $0.01 a share, while Wall Street was looking for a penny loss on sales of $48 million.
If Limelight can build off the Netflix momentum and start to add more customers, they could be a company to watch going forward. As we head to press, Dow futures are up by 7 points to 10,320 while the S&P 500 futures are higher by 2 to 1,212. The Nasdaq 100 futures are lower by 3 points to 2,173.
Disclosure: No Positions