Akamai Technologies, Inc. (NASDAQ:AKAM) UBS Global Technology Conference Call November 20, 2013 1:00 PM ET
Jim Benson – Executive Vice President & Chief Financial Officer
Reid Menge – UBS Securities LLC
Reid Menge – UBS Securities LLC
All right, good morning everybody. My name is Reid Menge I’m the Research Team here at UBS. And we are very pleased to have, Jim Benson, CFO at Akamai as your next presenter. So Jim I want to start with fiscal Q3, it was actually a good quarter upside of revenue and earnings. But I feel like kind of the stock narrative coming at the quarter was guidance with large customer renewal topic. So maybe just start with the key message like for investors.
Sure, so we absolutely had a fantastic Q3, we’ve actually had a great three quarters of the 2013 year, and I think we know as dealing with the investment community is not what you did today, that's what you guys are projecting to do next quarter and next year. So we certainly get that, I think that what we try to do to be frank is to be very transparent, with the investment community that there is a large customer that we have in our media business, that is going to be going through a customer renegotiation.
And it's unlikely that, that customer will renew this quarter, but it may and if it doesn't renew this quarter, they will renew in the first quarter and what we wanted to do, is at least signal to the investment community that this was happening, so it wasn't a surprise later on, it's always a challenge as you can imagine when you’re going through a contract renegotiation, you don't want to have the subject of it basically on an earnings call affecting the negotiation.
But unfortunately we wanted to make sure we were transparent, I do think that you got to step back from the customer renegotiation and look at the dynamics of Akamai’s business. We’ve been growing the first three quarters of the year if you exclude the divestment of our ADS business. We’ve been growing the business at around 19%, and so we've been growing the business very healthy, we’ve had good growth in our media business, we've had good growth in our performance and security solutions, we’ve had good growth in our service and support offerings.
And the business is very healthy, I think unfortunately when you go through a period, where our media business tends to be the business that people overreact to both on the downside and the upside, I think the media business is very healthy, yes we’re going to go through a contract renegotiation, but if you look at the secular tailwinds, that we’ve talked about that drive that business, which is video delivery, software downloads, gaming, and social media but trends in those areas have done very well for us, that we are growing very well with our customer base.
And so the media business is actually very healthy, we’re just kind of go through a period, where we’ll kind of see a little bit of an impact as a result of this large customers that we’re renewed, but I think you have to separate that and say what’s really going on with the dynamics of the business in general, dynamics of the business is very strong even in spite of this renewal, we’ve been making investments to grow and accelerate our performance and security solutions, we talked about that with the investment community pretty much for the last year, we’re making very significant investments in our sales force and I’m sure we’ll talk about that in a few minutes.
So I think the general message that I want the investment community to understand is that the business is healthy, and yes we’re going to go through this period of customer renegotiation that shouldn’t dominate really the fundamentals of the business, the fundamentals of the business is strong, I think we’ve talked about that our media business is not a linear business, it’s going to go through periods, where traffic grows and spikes and then it dips.
And you’re going to go through periods, where you go through customer renewals like we’re going through, that’s happened in the past, if you look at it over the last X number of years, it’s been a very consistent grower on average for the company growing kind of in the low-to-mid teens and we expect that, that will continue and you may go through periods where grows slower than that and then you go through periods where it grows faster than that.
Reid Menge – UBS Securities LLC
That the reinforced conference from sales force is happening this week, or good customer of Akamai, one of the things that the CEO about kind of entering the third year of computing this Internet of thing and tend doing, connective devices going $50 billion how is this playing through what Akamai is doing?
Actually, it plays very well and we’ve talked about kind of a premise of kind of any device, anywhere if you think about as this is proliferation of devices, whether they would be wireless, whether they’d be Wi-Fi, whether they’d be through landlines that think about your own life and you think about the how connected you are, used to be that you went online, you know longer go online, you are online, you are online all the time.
And so it actually plays to Akamai’s strength, because as more and more proliferation of devices out there, the complexity of managing through that for our customers and ensuring that their end users have positive experiences, positive experiences being find as it’s reliable connection, it’s a connection that has good performance, when you’re trying to get on to a website, where you’re trying to leverage web application, you have to leverage technologies that companies like Akamai provides to really enable really what’s going to happen.
It’s more and more devices become proliferated, the challenges become more pervasive, we talked about our suite of solutions in what we call our web experience business which effectively is our performance businesses that accelerate websites, accelerate web applications and it used to be that we could provide a solution, that effectively worked and leveraged across all customers and devices.
As you have more and more devices, that are out there, there is this notion of situational performance where if you happen to be on a cellular network, in a bad connection you basically need to have technologies that recognize where the end user is and try to provide acceleration to technologies that optimize that experience for them. We have offerings that allow us to detect the device, detect the signals that they have whether it’s strong or weak.
And then potentially compress images, compress the files, so that the experience for them is enhanced, we use the phrase situational performance because it varies and if you’re on a Wi-Fi connection it might be different than if you are on a landline, and if you are on a cellular connection, in a crowded city somewhere and so. I actually think that as you have an explosion of devices that actually plays to the needs of companies like Akamai.
Reid Menge – UBS Securities LLC
One of the things you talked about was the media business maybe getting, maybe too much attention at times from investors, one of the big topics here is we think kind of CDN pricing erosion, so what are you seeing there? in terms of the pricing?
I mean we don’t specifically talk about the actual number of pricing erosion, but what I have provided a color on is that the rate and pace of the pricing kind of the media business is a business that the dynamics of that business prices come down. And so that’s going to remain in that business and the rate and pace of pricing erosion has been very consistent, I’ve been with the company a little over three years and we kind of measure that around, how pricing has looked every quarter relative to what it was the previous quarter or the previous year.
And the level of pricing kind of reduction in aggregate has been very, very consistent and it hasn’t been worst meaning it hasn’t gotten a more heightened pricing environment and it hasn’t become a more ease pricing environments, it’s been very consistent, that doesn’t mean you certainly going to have customers that and I will use the averages that’s a very appropriate average comment for you going through situations where you will have a media customer that maybe, didn’t renew maybe the last time they renewed was three years ago.
Well, certainly the pricing dynamics three years later are very different than they were three years ago. And so the level of pricing reset that you’ll have for the customer will certainly be cost higher than the average, and then you’re going to have customers that maybe renewed within the last year and you have level of pricing reset is significantly less than that and when you average that out the pricing environment has been relatively stable and will continue to provide information to the investment community, if it eases or it gets better, we don’t expect that it will, I mean we don’t expect it, it’s going to ease.
As a matter of fact, we think if anything because the business models that leverage the internet, whether it’d be video delivery, whether it would be social media et cetera that the monetization models need to mature for those businesses whether they are ad based, whether they are subscription based or whether they are kind of combination.
And so the eco-system, the profit model needs to mature and effectively what that means as you’re going to need to drive down cost of delivery and so even if the pricing environment stabilized because our competitors maybe don’t want to be pricing as aggressively, which is certainly not been the case to-date, but even if that were to happen, we actually think we need to try to continue to drive down costs in the media business to enable that eco-system and enable the traffic to grow to enable more video consumption to occur online.
Reid Menge – UBS Securities LLC
Are there strategies to generate pricing power in the business whether it’s layering in value added solutions or contract duration strategy they are dealing with?
They certainly are, I think and again, I think you’re talking about our media business, so we talk about our media business in particular, there is certainly going to always be an element of our businesses that’s either delivery of bits, which is you’re delivering bits, either for software downloads or you’re delivering bits for social media where you’re serving traffic and things of that nature so.
One of the distinct advantages we have is that we have the most globally distributed platform and we have the best performing platform and while that’s good for most customers and while we can usually command some level of pricing advantage in that environment, there is a level of what they’re going to want to pay for a premium for that and so they certainly will pay for the delivery being a little bit better in a globally distributed environment.
But what we have found is that we have to try to wrap additional services around that which maybe stickier and in the media business, in particular one of the things that we’re working on is offerings that get us more deeply embedded in the workflow, so think of it as right now we’re serving the traffic, whether it’d be object delivery or video delivery if we can get more deeply embedded in the customers work flow which basically leads up to having traffic to serve overall network as you become more deeply embedded in their workflow, now all of the sudden it’s harder for them to disconnect themselves from you being a delivery of the air traffic versus you actually have a role to play in their workflow. And so that’s one of the strategies within our media business that they are working on how you become more deeply embedded in the workflow of customers in particular your big media customers.
And that could be providing add insertion capability that could be providing potentially transcoding on the fly and our cloud, so there are things that I would say that right now the media business is very heavily dominated by just the delivery of traffic, but we are working on areas that get us deeply embedded in the workflow and we think that, when you do that, that it should yield the pricing your pricing power may not improve substantially to my earlier points, but you become stickier with the customers and maybe their desire to split traffic amongst multiple CDNs left.
Reid Menge – UBS Securities LLC
And there are some key developments in Q3 and Q4 that might have gotten less attention than the guys particularly the IBM security relationship and the Cisco partnership maybe just talk about you’ve been a partner with IBM for a while now, so what’s changed there with the relationship, why are you coming together side by side?
Yes, I’m glad that you brought that up, you are right at times with the focus being so much on the next quarter, and what affects the next quarter that the bigger picture areas around what’s happening more pervasively in the business, that I would say our long-term benefits of the company, two of which you mentioned, so IBM has been actually Akamai’s largest reseller, so of the people that resell our sources they’ve actually been the largest reseller that we’ve had, we’ve got a very long relationship with IBM for quite some time.
This particular relationship is in our security portfolio, so we have a relatively small security businesses, it’s the fastest growing product category that we have in the company but it’s still relatively small and one of the things that we had to do initially is you have to have a proof point where you build capability and credibility with your customers, that you actually have a kind of a viable security offering.
But in the security landscape many enterprises buy their security offerings from the demand service security providers like IBM, there are others beyond IBM but IBM happens to be a large one, where they basically sell the full suite of security offerings end-to-end, obviously our security portfolio focuses on DDoS and web application firewall protection.
And then other security offerings that run up to stack and so we’re a piece of the equation that was a area of IBMs portfolio that they had a gap and so they were very interested in having Akamai as think of it as a skew within their portfolio to be able to sell and so we are excited about that as a prospect that we now are skewing their portfolio as they sell their overall security offerings, they can now sell our offerings with them and so that’s probably not going to have a benefit next quarter but that certainly has a benefit over time as we get traction with IBM.
On the Cisco side, the Cisco side was more of a partnership around which is right now announces the Memorandum of Understanding, so we don’t have a definitive with them but obviously Cisco doesn’t announce these partnerships lightly and so this is basically what that offering is Akamai has provided acceleration obviously within the public Internet, Cisco has provided kind of optimization and acceleration behind the firewall and Akamai has not done that, this provides an end-to-end solution where we are able to provide to branch offices end-to-end performance improvement and optimization.
So think of it as whether they are leveraging, whether they are leveraging and they want applications that are may be in a data center within their private cloud environment, whether they’re actually having to traverse into the public Internet, as you know that this hybrid cloud environment, is becoming a more complex environment. And so what this solution does, is it provides end-to-end performance in optimization.
And if you think about Cisco, Cisco has 80% of market share of routers in the branch offices, and so as they go through an upgrade cycle with their routers this solution offerings think of it as, they’re going to try to sell their, and upgrade their routers into these branch offices. And they can either sell them with this capability or without this capability when this offering comes out which will be some time in 2014, and so for Akamai we’re very interested in it, because we’re partnering with the market leader. In Cisco, it has dominant market share, we are able to, if we are successful leverage the Cisco sales force, and Cisco channel.
So think of it as maybe catching on to a fly wheel, so to speak through their upgrade cycle as they upgrade and sell their routers into the branch offices. To the extent that they are selling it with this optimization capability, it's a huge benefit to Akamai because it's no longer requiring our sales force to sell it directly. We will certainly have to support the Cisco channel, and so this could be if this is a successful offering, well probably will not be a meaningful revenue contributor in 2014 if this offering is successful this could be a very significant contributor to revenue, in 2015 and beyond.
Reid Menge – UBS Securities LLC
Any questions from the audience?
How does it compare to the Riverbed partnership?
It’s very different in the Riverbed partnership in that. What the Riverbed partnership did was it provided optimization in performance, only for three applications which is basically Office 365, Salesforce.com and Google apps. And so that the Riverbed application was much more narrow, what this provides is full optimization for your branch office, for all applications, all websites. So it has much more pervasive used case, than what we were doing with Riverbed.
We still have that relationship with Riverbed, admittedly that relationship has not been a successful companies would have liked and I think part of it, it was probably a little bit ahead of its time. I think part of it was that its used case was more narrow to these three applications. And I think the need is more pervasive than that, and so I think we are excited in particular about the Cisco offering, because if you think about it for those folks that have been following Akamai.
We were developing our own hybrid cloud optimization product and we’ve actually had customers that have been in trials, invade us already for our own effectively our own hybrid cloud optimization solution. And what that meant was we were basically going to have to embed our software into a pretty modest device that we get deployed into a branch office and then into a data center. And as you can imagine Akamai does not have a lot of experience in that whole deployment model.
And so we always knew to get traction in the hybrid cloud area, you may have to start off that way, but effectively what you would have to do is what we would want to do is, to develop partners with some big brands. And I think and you can't have a bigger brand than Cisco who has dominant market share and who has an interest in our capabilities as well as embedding it with their own technologies.
Close to think about kind of a 10 year income statement for Akamai basically five years ago, CDN was 90% of your business today, roughly evenly split between media delivery, web performance, over time you’re going to get growth from web performance securities and these are the areas with higher gross margins. So the gross margins are ticking higher and you’re kind of talking down EBITDA margins, over time, so maybe talk about the dynamic between rising gross margins and why 43% to 44% EBITDA but then guided down towards…
Right. So what I’ve talked about it in our Investor Summit that I guided to that I believe the right model for the company is a 40% to 45% EBITDA model and that’s actually got the fairly wide range, let’s kind of think of it as a long term model and we’re going to and I continue to tell people that we plan to operate the company in a low 40s EBITDA, in the near-term and the reason that is, that we are making significant investments in the business.
So we are investing in operating expenses at a rate and pace much faster than the revenue growth. So think of it as we’re going through a period of significant investments that is going to lower EBITDA for the company, you are right that over time as more of our mix of revenue becomes oriented towards, our performance and security solutions in particular, you should be able to see think of it as it will drop to kind of the low 40s EBITDA probably sustain ourselves there.
But as you grow and expand your performance and security offerings as a percentage of your total, you should be able to get EBITDA expansion, so think of it as we’re going to operate, we’re going to probably bring the company down to a low 40s EBITDA and then it will probably build back and the reason it’s a fairly wide range is that if you think about our media business that our media business is a business that some years it’s going to grow probably in the high teens, some years it’s going to grow in the low-teens.
And if it’s growing in the high-teens and you’re still having very healthy growth in your performance and security solutions you’re probably going to have be more on the lower end of the model but I would agree with you over time on a long-term if we are successful and having performance and security be a larger percentage of the portfolio you should drift to the higher end of that range.
Reid Menge – UBS Securities LLC
Okay. Part of this two is very aggressive hiring of sales capacity?
Yeah, I think one of the things that, we’ve try to share with the investors is that, in the media business, the media business is really about signing up the right companies that are the big traffic pushers, because it’s only a finite number of companies that push a lot of the traffic on the internet, so it’s less a go to market issue and we need to invest heavily in your sales force, it’s much more about building out your platform and having a scalable cost effective platform.
On the performance and security solutions, it is much more like the SaaS business where it’s a monthly subscription model and monthly subscription model means it’s transaction based, transactions we’re doing so many transactions that a sales reps can drive and so you’re guided to grow that business by the amount of sales capacity that you have and the productivity that you can drive there.
So we’ve been making a very significant investment in that, in the sales force to really grow primarily our performance and security offerings, and the way that works is because it’s the bookings model and it takes a while for your sales force to get productive and admittedly our products are not cooky cutter easy to sell products, it takes four to five quarters for sales reps to get fully productive and so it’s a ramp time when you hire them, train them, get them productive, then they become fully productive four to five quarters out.
And then literally this maybe a two to three months lag between when it becomes fully productive and it turns into revenue, so we think we’re making the right decisions for the company, we’re making the right investments for the company, that we’ve increased the pace of innovation in that performance and security area, the timing was right to invest more in the sales force, we happen to be going through a period this year, where the way that business works is basically revenue growth this year is largely driven by bookings that were produced last year, and that’s not 100% true but I’d say it’s directionally true and so this investment in the sales force our expectation is once the sales force becomes productive and I think on the cohort classes particularly higher in Q4 2012 four to five quarters later becomes fully productive.
And then in Q1 class et cetera, that we’ve been saying that if we were successful and we can hire, train, on board and make productive to sales force that by the back half of 2014 if we’re successful in executing against it you should see a reacceleration in the performance and security solutions side.
Reid Menge – UBS Securities LLC
Okay, there is a question from the audience.
The question is really that so over the next few quarters guided to mid-teens growth because of the ramp of sales force, and this first time you guys are doing really this kind of sales totally before, media it’s going to scale right, so the next few quarter we are sort of just bit of wait and see here that media you’re negotiating big customer in the performance segment, you are just getting the sales force ramped up so we’re not going to expect too much really from next quarter?
And I think that you said it well, probably even better than I did more simply than I did I just want to provide a little bit of color, you’re absolutely right that we’re going to go through a period with the media business, because of this large renewal we’re obviously you’re going to see a price reset, and the impact of that it’s going to take a while to see the benefit of the sales force which is probably going to more in the back half of 2014.
But our expectation from there, if we are successful in executing that you should see it ramp from there, but in the spirit of kind of candor and transparency that this is Akamai has historically hired sales reps in the handfuls. And if you think about it we had 215 sales reps as of the end of Q4, we’re going to effectively increase that sales force capacity by 50% by the end of this year.
And so the challenge for the company is are we going to be successful in hiring the sales reps to ensure that the right ones, training them, making them productive in the ramp time that I had mentioned. And so I would say we’re gated not by an opportunity, challenge we’re gated maybe by our execution challenge. So I think that the challenge for us is can we actually execute against this successfully and we’ll provide you guys information along the way.
I’d say that the first three quarters in, the good news is that the hiring capacity is where we thought it was going to be, so we’re hiring the number of reps that we were expecting it’s early to tell whether or not they are going to drive to full productivity we think as I mentioned, we think of them as cohort classes so far. They are ramping reasonably well, but reasonably well it means that this expectations are pretty low for them early in their tenure.
As they ramp up around their four quarter tenure and their five quarter tenure I think that we’ll share with you how those classes are doing and that’s really Q4 and Q1 are going to be the first kind of wrap around quarters for the company.
Reid Menge - UBS Securities LLC
So there is a kind of a $5 billion aspirational revenue target by the end of the decade, there is really three emerging businesses security, private cloud, carrier products maybe you can talk about just the relative or how you see the kind of relative contribution to that revenue from those three buckets?
Yeah. That’s a good question, that so you’re right, we have an aspiration that between now and the end of the decade to be a $5 billion company, we said it publicly and people say well if you said publicly in that guidance, still be it I guess it’s guidance then, what we said is that, that’s our aspiration and so 18% you get to parse our business and you say well what do you think is going to happen with media, what do you think is going to happen with performance and security. And I will talk about kind of them specifically and then what’s going to happen in service and support.
So we actually believe that of the 18% kind of in general, the media business is going to grow slower than that, but think of the media business is growing probably in the lower teens on average.
You’re going to have years where it grows more than that and you are going to have years where it grows less than that but I think of it as on average kind of in the teens, low teens, which means your performance and security offerings are going to have to grow probably in the 20s in order to get 18% CAGR.
And so the way you get there is we have our existing businesses which are performance in particular and then a new kind of call it an emerging business but a security.
So think of it as performance is probably going to grow, probably a little bit at or less than the overall kind of, if we’re going to grow kind of in the 20s, performance is going to grow lower than that, because that’s an existing matured portfolio not fully penetrated but certainly much more further penetrated than our other offerings, security is going to be a big driver of growth in the near-term for that part of our business.
And then these new emerging areas, hybrid cloud probably being the biggest is going to be the horse that we believe is going to be a significant contributor of revenue to growth and performance and security, so whether it’s success with the Cisco partnership or whether it’s success through other partnerships that the way to think about it is the performance and security portfolio is going to probably grow in the 20s.
And off that you’re going to grow slower than that in the performance category, you are going to grow much, much faster than that in the security portfolio and that will be the near-term horse for the next kind of call it year or two. And in the emerging area of hybrid cloud is going to be a huge contributor more in call that the two to three year horizon and I said that carrier business that will be a contributor.
I don’t think we ever expect the carrier business to be like a huge contributor to revenue growth, I think the beauty of that, of the carrier business that just to make sure that it cover that just briefly is that the benefit of us being more deeply embedded with carriers is basically multifaceted. One because we have a relationship with the carriers to get better network cost economics and that manifest itself in improved cost of goods sold, improved gross margins.
The benefit of deeper relationships with the carriers, even if you don’t sell on the license for managed CDN product is deeper relationship in their network like what we are doing with AT&T, the other benefit you get is that you get deeper relationships with them and in many cases they no longer want to compete with you and they want to resell your offerings as opposed to selling their own competing offerings because they know that you have a much broader set of offering than they do.
You have a global platform as opposed to a platform that has effectively code this with other networks and so they get the benefit of selling our broader set of offerings as opposed to the narrower set of offerings, that should manifest itself in more performance in security sales for the company.
And the third area and admittedly the much smaller area is actually selling them manage their licensed CDN solution if they want to do it on their own and so think of it as we do that because some carriers are going to want to do that like Orange, France Telecom, they want to do that in that market and that may make sense in that particular market but I think of it as more we’re really trying to get deeper with the carriers and at the end of a carrier discussion, it ends up with the better cost model for us on COGS, it ends up with the resell model with us and it doesn’t end up in a licensed CDN deal, I think that’s okay.
Reid Menge - UBS Securities LLC
Would you expect market share impact?
Can you speak up just?
Do you expect market share from what you expected it was increasingly wireless world versus negative wire growth are there any reasons why market share?
No, I mean I think you’re right there is a difference in traffic whether traffic is served over a kind of a landline or a Wi-Fi versus traffic versus cellular. Cellular the traffic is actually lower. But from a market share perspective, and it’s hard to measure market share that in the media business in particular the way we tend to measure it, internally with our big customers that push a lot of traffic, we measure it internally around are we the sole provider in there and if we’re not the sole provider what share do we have with those clients and I think we’ve been pretty open that in particular in the media business where others can do that, maybe not as well as we do. But there is a, they will dual source or multi-source with multiple CDNs and some of it I think is the key Akamai pricing competitive to be quite frank because they want to make sure that there are alternatives and that there is risk mitigation for that.
But actually I think that there is going to be an environment going forward where there is going to be people that exclusively use CDNs, there is going to be people that use CDNs and try to serve some of their own traffic themselves. Netflix I think certainly has for their narrower used case has stated that they certainly want to try to provide to serve some of that traffic with themselves but I think as more and more traffic moves whether it’d be social media gaming, software, video delivery I think that just the huge a massive push of incremental traffic is going to have an ecosystem that’s going to roll out it has very healthy growth to the rates that I mentioned even in an environment like that.
And one of the things that we probably can’t get into deep now, because it’s more of a call it a future three to five year out model is we are also doing a kind of Dwayne Gretzky analogy or skating to where the pack is going, we are right now effectively video traffic and software traffic and all this traffic has served from servers on the Akamai network to an end user and they get a good experience because we’re close to them.
Our vision is to build the next generation delivery platform where it’s basically Akamai software that is embedded in the Telcos networks and so think of it as a kind of a hub in the home where whether it would be a set-top box or something like that as opposed to actually getting your video served from an Akamai server nearby. You’re potentially getting your video served from your neighbor because it’s embedded into network and they are leveraging your kind of your neighbors set-top box now people get worried about that because they call it that’s peer-to-peer in the wild and what we’re envisioning is something that is much more controlled, much more secured is something that the
set-top box guys are interested in. Something that Telcos are interested in and so we actually think if we can build this out and again very early days we’re in more proof-of-concept right now.
That could be the next generation of our media business but I’d say call it the next three to four years it’s going to be the standard model but potentially in the future it’s a model that actually scales better and actually it’s a model where I might be talking to you four or five years from now telling you that the economics of our media business no longer are kind of maybe lower economics in the overall company they’re actually better economics because it’s largely speaking a software fabric business and it’s not a business that is dependent upon CapEx and servers to fuel its growth.
Reid Menge – UBS Securities LLC
One of the really interesting topics right now, is the NSA PRISM revelations and there has been some industry analysts talking about how that could mean $20 billion, $30 billion lost in U.S. cloud companies from international customers, I mean what are you seeing I think you made a comment about are you seeing a little bit of an impact in customers in Germany or is there any impact in general that – you think some of these revelations that?
I mean certainly that is a significant concern for most if not all of our customers right. And but I would say that when you explain to customers that what we’re not doing is we are really not doing deep packet inspection of their traffic with our own people, that so there is an element that we’re serving the traffic for them, we’re not doing deep packet inspection on the traffic.
And once they understand, how we’re leveraging it, it doesn’t I would say they get much more at ease, you’re right that and we’d see and it’s really only been from a handful of customers in particular in Germany, I think Tom mentioned it on the earnings call that are worried about that and so there maybe an impact for some companies like that, now the challenge for those companies that is in fact they decided to move away from an environment like that is the performance that they are going to have on their website and web applications is going to be horrible.
So I don’t think it’s a huge impact for Akamai, the reasons that I mentioned but it’s certainly something that there is looking at over the kind of the future, and if it becomes a more substantive impact we’ll certainly let you know but we don’t believe it’s going to be an impact. Okay. Any final questions.
Reid Menge – UBS Securities LLC
Great thank you.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: email@example.com. Thank you!