Will Akamai Technologies Finally Get Over Netflix?
Akamai Technologies will release its quarterly report on Wednesday, and investors have been nervous about the impact that Netflix's decision to take its content-distribution network in-house would have on the company. Yet even as peers Limelight Networks and Level 3 Communications have kept posting losses, Akamai earnings look poised to climb as it cashes in on Internet traffic more broadly.
Akamai has had a bumpy relationship with Netflix over the years, with Akamai winning status as its primary digital-delivery provider in 2010. Yet just last year, Netflix decided that it wanted control of its own streaming delivery service in order to take full responsibility for its quality. That left Akamai with the loss of a major customer and threw Limelight and Level 3 for a loop as well. But unlike its peers, Akamai appears to have found ways to stay profitable and even improve its overall business health. Let's take an early look at what's been happening with Akamai over the past quarter and what we're likely to see in its report.
Stats on Akamai Technologies
Analyst EPS Estimate
Change From Year-Ago EPS
Change From Year-Ago Revenue
Earnings Beats in Past 4 Quarters
Source: Yahoo! Finance.
Can Akamai earnings keep climbing?
In recent months, analysts have been narrowly mixed in their views on Akamai earnings, cutting third-quarter estimates by a penny per share but raising their full-year 2013 projections by a penny per share as well. The stock has done quite well, climbing 15% since mid-July.
Akamai has clearly benefited from the rise in high-bandwidth traffic on the Internet. After the company's second-quarter report, CEO Tom Leighton cited the higher volume of high-quality video content as helping to drive overall Akamai traffic. That was enough to offset a drop in the number of customers it saw, as sales still rose 14%. Leighton also pointed to growth in its security-solutions business as helping the company drive growth.
But competition remains fierce in the industry. Because Akamai, Limelight, and Level 3 are all fighting for business in content delivery, prices for delivery services have declined rapidly. In addition, emerging cloud giant Amazon.com has the potential to become a larger player in the space, especially as it seeks to offer turnkey one-stop solutions to its cloud-services clients.
Nevertheless, Akamai has inspired optimism among investors. Just last week, analyst firm D.A. Davidson pushed its price target upward, noting Akamai's attempts to sell higher-value software applications to existing customers in order to broaden their business relationship. Such moves are a good way for Akamai to hold onto customers even as conditions in the Internet space change rapidly.
In the Akamai Technologies earnings report, watch to see how the company responds to its evolving business in the wake of Netflix's key decision. Good news would allow Akamai to claim victory as the winner over Level 3 and Limelight in sustaining its core business even after the loss of a major customer.
After Akamai, what's next for Netflix?
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The article Will Akamai Technologies Finally Get Over Netflix? originally appeared on Fool.com.Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter: @DanCaplinger. The Motley Fool recommends and owns shares of Amazon.com and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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