Akamai AT&T Hook Up a Win for Both Companies

Share On Facebook

 

© Image copyright paulk

Akamai Technologies (NASDAQ:AKAM) has gone into a channel partnership with AT&T (NYSE:T), now that AT&T has finally given up on being a CDN.  In other words if you can’t beat them, join them. This is an extremely significant turn of events as AT&T could have turned to one of Akamai’s competitors, like Limelight Networks (NASDAQ:LLNW), for this deal. In essence, the two companies will combine their expertise –Akamai’s content delivery services and AT&T’s IP network– to provide a one stop solution for their clients.

EPS in its latest quarter was $0.54 per share topping analysts’ estimates of $0.50 per share and 20% higher year over year on increasing net margins.  However top line revenue was a disappointment to relatively weaker online activity. However, content delivery network (CDN) services to media and entertainment is where the growth was with an increase of 15% to $158 million thanks to rapidly expanding online video viewership. The deal with AT&T will accelerate this growth over the next few years.

Don’t expect immediate returns here and this is ultimately why Akamai can drop its ad business in favor of the more lucrative CDN business.   The agreement was signed in December, and AT&T will be transferring its existing CDN operations; both customers and services to Akamai. The initial focus for both companies is to cater to the North American region, with global coverage plans in the current year.

To improve its corporate focus, Akamai will be slashing those media accounts that do not offer long term economic value. Apple (NASDAQ:AAPL), Sony (NYSE:SNE), News Corp (NASDAQ:NWS), Nintendo and NBC are amongst some of the major media clients for Akamai. The segment accounted for 46% of Akamai’s total revenues in 2010 and its contribution shrank to 34% in 2011.

With the monumental growth of digital media, most companies have decided to redesign their networking solutions to provide better quality results.

AT&T, despite nearly a decade of trying to breach the CDN market, finally had to admit failure and partner with an expert in the field. This is one of those rare moments where a larger firm could not bully the market with its huge guaranteed business in other areas.  It is a rare moment of humility for AT&T and highlights just how poor its offerings in CDN were.  Both Akamai and AT&T agreed on sharing resources like technical support and marketing. 

This fear of a massive telco coming in and bombing the market has not been credible for a long time but it was hurting the bottom line of both companies.  This really is a classic case of the the whole being worth more than the sum of its parts.  It should also show investors that telecommunication companies are more likely to join with the existing CDN deliverers than compete against them.

Akamai recently forecast its current quarter’s revenue earlier this month below analysts’ expectations as the company looks to cut down its media contracts. The news caused its stock to tumble by as much as 16%. Akamai expects its adjusted earnings to be between $0.50 and $0.52 on revenue of $352 to $362 million. Analysts were expecting earnings of $0.47 per share on revenues of $370.1 million.  This caused the stock to crater to a low of $33.55 and has since rebounded sharply.

For those looking to build a longer term position, Akamai is trading in a medium term consolidation between $33.50 and $40.00 per share.  The revenue warning hit the stock hard and killed a breakout from that range and put it back within its old range.   I would be a buyer on a weekly close above $42.00 per share and would feel more comfortable with further confirmation above $42.55. 

This deal with AT&T is something this industry has been waiting to happen for a long time and not that it is here that should begin lifting the worry from the stock from a fundamental perspective.    The stock has regained a neutral position at $38.65 per share. 

Akamai Technologies (NASDAQ:AKAM), the internet infrastructure company that has clients ranging from Facebook (NASDAQ:FB) to Netflix (NASDAQ:NFLX) forecasted its current quarter’s revenue earlier this month below analysts’ expectations as the company looks to cut down its media contracts. The news caused its stock to tumble by as much as 16%. Akamai expects its adjusted earnings to be between $0.50 and $0.52 on revenue of $352 to $362 million. Analysts were expecting earnings of $0.47 per share on revenues of $370.1 million.

Akamai will be slashing those media accounts that do not offer long term economic value. Apple (NASDAQ:AAPL), Sony (NYSE:SNE), News Corp (NASDAQ:NWS), Nintendo and NBC are amongst some of the major media clients for Akamai. The company has been scaling down its media operations. The segment accounted for 46% of Akamai’s total revenues in 2010 and its contribution shrank to 34% in 2011.

Akamai’s expenses increased in its first fiscal quarter of 2013 because of increased investment in its sales team and research and development. EPS was $0.54 per share topping analysts’ estimates of $0.50 per share and 20% higher year over year on increasing net margins.  However top line revenue was a disappointment to relatively weaker online activity. However, CDN services to media and entertainment showed good signs of growth with an increase of 15% to $158 million thanks to wider adoption of online video viewership.

Akamai has expanded its share repurchase authorization by $150 million for the next 12 month.

Akamai has gone into a channel partnership with AT&T (NYSE:T), now that AT&T has finally given up on being a CDN.  In other words if you can’t beat them, join them. This is an extremely significant turn of events as AT&T could have turned to one of Akamai’s competitors, like Limelight Networks (NASDAQ:LLNW), for this deal. In essence, the two companies will combine their expertise (Akamai’s content delivery services and AT&T’s IP network) to provide one stop solution for their clients.

Don’t expect immediate returns here and this is ultimately why Akamai can drop its ad business in favor of the more lucrative CDN business.   The agreement was signed in December, and AT&T will be transferring its existing CDN operations; both customers and services to Akamai. The initial focus for both companies is to cater to the North American region, with global coverage plans in the current year.

With the monumental growth of digital media, most companies have decided to redesign their networking solutions to provide better quality results.

AT&T, despite nearly a decade of trying to breach the CDN market, finally had to admit failure and partner with an expert in the field. This is one of those rare moments where a larger firm could not bully the market with its huge guaranteed business in other areas.  It is a rare moment of humility for AT&T and highlights just how poor its offerings in CDN were.  Both Akamai and AT&T agreed on sharing resources like technical support and marketing. 

This fear of a massive telco coming in and bombing the market has not been credible for a long time but it was hurting the bottom line of both companies.  This really is a classic case of the the whole being worth more than the sum of its parts.  It should also show investors that telecommunication companies are more likely to join with the existing CDN deliverers than compete against them.

For those looking to build a longer term position, Akamai is trading in a medium term consolidation between $33.50 and $40.00 per share.  The revenue warning hit the stock hard and killed a breakout from that range and put it back within its old range.   I would be a buyer on a weekly close above $42.00 per share and would feel more comfortable with further confirmation above $42.55. 

This deal with AT&T is something this industry has been waiting to happen for a long time and not that it is here that should begin lifting the worry from the stock from a fundamental perspective.    The stock has regained a neutral position at $38.65 per share. 

Normal
0

false
false
false

EN-US
X-NONE
X-NONE

/* Style Definitions */
table.MsoNormalTable
{mso-style-name:”Table Normal”;
mso-tstyle-rowband-size:0;
mso-tstyle-colband-size:0;
mso-style-noshow:yes;
mso-style-priority:99;
mso-style-parent:””;
mso-padding-alt:0in 5.4pt 0in 5.4pt;
mso-para-margin-top:0in;
mso-para-margin-right:0in;
mso-para-margin-bottom:10.0pt;
mso-para-margin-left:0in;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:”Calibri”,”sans-serif”;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;}

Click Here to register for free on Investors Hub

This area of the investorshub.advfn.com site is for independent financial commentary. These blogs are provided by independent authors via a common carrier platform and do not represent the opinions of Investors Hub. Investors Hub does not monitor, approve, endorse or exert editorial control over these articles and does not therefore accept responsibility for or make any warranties in connection with or recommend that you or any third party rely on such information. The information available at Investors Hub is for your general information and use and is not intended to address your particular requirements. In particular, the information does not constitute any form of advice or recommendation by investorshub.advfn.com and is not intended to be relied upon by users in making (or refraining from making) any investment decisions.

Comments are closed

 


Your Recent History
LSE
GKP
Gulf Keyst..
LSE
QPP
Quindell
FTSE
UKX
FTSE 100
LSE
IOF
Iofina
FX
GBPUSD
UK Sterlin..
Stocks you've viewed will appear in this box, letting you easily return to quotes you've seen previously.

Register now to create your own custom streaming stock watchlist.