As more content providers opt to build their own content delivery networks, Akamai may find itself in a rough patch if it can’t transition its revenue generators quickly enough to its newer offerings like online security, cloud services and performance monitoring, according to analysts. But those additional services also offer a ray of hope.
Currently, Akamai’s two largest CDN customers -- unnamed, but making up about 5 percent of its revenue -- are continuing to reduce their use of the provider’s services as they migrate to their own CDNs. The CDN pioneer hasn’t been caught flat-footed; it added the other key services to its portfolio over the past few years in anticipation of revenue pressures due to increased competition and lower prices in the CDN market segment.
Still, analysts are keeping a close eye on Akamai’s performance.
“The continued weakness generated by these two customers, lack of substantial OTT adoption and our worries over whether Akamai's next four largest customers will also scale up do-it-yourself (DiY) efforts led us to downgrade shares,” said Pacific Crest analysts Michael Bowen and Brandon Nispel in a note to investors this week. The analyst firm downgraded its rating of Akamai to “Sector Weight” and did not iterate a target price.
Evercore ISI maintained its “Buy” rating on the provider with a target price of $56, based on what it feels are long-term opportunities from its security and performance offerings. But revenue headwinds in Akamai’s CDN business “have proven more severe and prolonged than expected,” said analysts Jonathan Schildkraut and Michael Hart in an investor note. “That being said, we continue to believe we are witnessing an evolution in network topology around cloud delivered services that favors investment in AKAM -- while recognizing investors may have to be patient to fully realize the opportunity.”
Akamai’s next CDN feat will be managing online video delivery of the 2016 Summer Games for NBC Sports. While CTO John Bishop told FierceOnlineVideo he expects traffic peaks above 7 Tbps during popular events, it’s not clear whether the nearly three-week broadcast will bump up revenues in the segment. Pacific Crest’s Bowen and Nispel said “we estimate the Olympics is a several-million-dollar event for Akamai, thus not a material contributor.”
For the long term, then, Akamai may see profit in its other business units, if it can ride out the short-term transition.
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