Akamai’s long-term bet lies in security solutions, added services, analysts say

Akamai's NOCC in Cambridge, Mass.

The best thing Akamai has going for it right now is its continuing drive to add more diversity to its services portfolio: that’s the consensus of analysts at Pacific Crest Securities, who noted that the CDN provider’s media traffic was down 23.4 percent year-over-year in the third quarter.

But with newer units like its security business still gathering momentum, the investment analyst firm recommended against chasing shares of Akamai, rating it at “sector weight” and declining to predict a target price, though it sees “fair value” of the shares at about $60.

"Traffic growth continues to be negative, and we are increasingly seeing a mix shift away from the media segment, which was evident in 3Q16 results and will likely continue,” said analysts Michael Bowen and Brandon Nispel, in a note sent to investor clients. “While we are still positive on the long-term secular OTT trends, we do not yet see an inflection, and would not be chasing shares at current levels."

FREE DAILY NEWSLETTER

Like this story? Subscribe to FierceVideo!

The Video industry is an ever-changing world where big ideas come along daily. Cable, Media and Entertainment, Telco, and Tech companies rely on FierceVideo for the latest news, trends, and analysis on video creation and distribution, OTT delivery technologies, content licensing, and advertising strategies. Sign up today to get news and updates delivered to your inbox and read on the go.

That may not be quite accurate, however. Dan Rayburn, VP and analyst at Streaming Media, points out that the traffic numbers quoted in the report as being down are based off of Akamai's dashboard data, which is not measuring traffic, only concurrent viewers. So putting out an actual number of the rise or fall of Akamai's media traffic is not possible or accurate, unless it comes from the company directly, he told FierceOnlineVideo.

Akamai’s strategy to add things like cloud-based network performance and security solutions, targeted advertising services and other value-adds to its revenue mix is pretty sound, Bowen and Nispel’s analysis indicated. Lower prices in the overall CDN market and the shift of two significant unnamed customers to their own proprietary CDNs were among the factors driving Akamai’s expanded service offerings. But it will take time for these additional services to gain significant revenue share, the analysts noted.

RELATED: Akamai growth may be threatened by accelerating shift to ‘DIY’ CDNs

Akamai last month reported third-quarter revenues of $584 million, a 6 percent year-over-year climb. Its Media Delivery Solutions revenue – part of its CDN business, the company’s original model – was $188 million, down 14 percent year-over-year, the company reported in its earnings release. The Media Solutions Division as a whole saw a 4 percent drop in the quarter to $284 million.

Conversely, its cloud security services segment jumped 46 percent year-over-year to $95 million, and overall, the Performance and Security Solutions unit to which that segment belongs saw overall revenue of $345 million, up 19 percent year-over-year.

With that shift toward services in its Web Division and Enterprise and Carrier Division continuing, Akamai could see a “beneficial lift in margins” in 2017. Still, its media solutions revenue is likely to remain lower in 2017, with consensus estimates putting it at $793 million in 2017, Bowen and Nispel said.

Updated Nov. 9 with comments from Dan Rayburn.

Suggested Articles

AT&T spent months hyping up its new streaming TV service but AT&T TV has fallen short of the incredibly lofty expectations the company set for the…

Comcast Spotlight, the advertising sales division of Comcast Cable, has hired Melanie Hamilton as vice president of national sales.

Amid pressure from federal regulators and consumers, YouTube might be planning to do away with advertising that targets children.