Akamai’s (AKAM) most important division is its media content delivery, constituting around 34% of its stock value by our estimates. The high value attributed to this division in our analysis comes from expectations of rapid growth in Akamai’s revenue per media customer. As a content delivery company providing web content to its customers, Akamai competes with other players like InterNAP Network Services (INAP), Limelight Networks (LLNW) and Level 3 (LVLT).
Our price estimate for Akamai stands at $37.11, which is roughly in line with market price.
Revenue per Media Customer
We estimate that revenue per media customer for Akamai dropped between 2008 and 2009 (from about $420,000 to 399,000) before recovering to $445,000 in 2010 as the economy stabilized and the internet media space marched forward. We expect this rapid growth to continue and estimate that Akamai’s revenue per media customer could hit $850,000 by the end of our forecast period. The interactive chart below illustrates how changes to this metric could impact Akamai’s stock value.
(Chart created by using Trefis' app)
Online Media Consumption Outlook
Growth in online media consumption and a broader shift in video quality to HD are two key drivers that should propel growth in Akamai’s revenues. Video subscription services like Netflix (NFLX), Amazon (AMZN) and Hulu are growing their user base, a trend that magnifies growth in online media consumption.
Facebook is also entering the fray, offering video rental and purchase through its platform. Netflix also recently finalized plans to offer original content through its online streaming service. While this move could disrupt the pay-TV industry, it points to upside for Akamai.
Apart from paid services, free sites like YouTube are also seeing tremendous growth. We expect YouTube users to increase from 488 million globally in 2010 to around 800 million over our forecast period. We also expect page views per user on YouTube to grow from 97 per month to slightly more than 144 per month during this same period.
Mobile Opportunity
On top of this, Akamai can also gain from rapid growth in mobile data traffic. While this is still a relatively alien space for the company, Akamai is positioning itself to benefit from this growth through strategic initiatives like its partnership with Ericsson (see Mobile Traffic Explosion Creates Both Opportunity and Risk for Akamai). If Akamai can capitalize on the opportunities sparked by mobile web traffic growth, the company stands to see upside to its revenue per customer metrics.
Disclosure: No positions
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