Long time @Minyanville readers know that I’ve been involved in Akamai stock (AKAM) for more than 15 years. What has intrigued me from day one has been the same basic thesis.
In this day and age, companies across all industries have very few opportunities for sustainable competitive advantages, with one exception: their ability to improve on their logistics.
Look at Amazon (AMZN), Walmart (WMT), Fedex (FDX), Uber, etc… Their competitive “moat” is the ability to get things or people from “here to there” better and cheaper than anyone else. You can think of Akamai as the Amazon of “digital content delivery”, and like Amazon, Akamai is light-years ahead of its competition.
In fact, outside of a handful of behemoths like Google (GOOGL), Apple (AAPL) and Microsoft (MSFT), which have the balance sheets to throw tons of money at the distribution of their digital content, Akamai has no real competitors. Even AT&T (T), with all of its network infrastructure, threw in the towel on its CDN effort in a matter of months, and concluded that it was better and cheaper to ally itself with Akamai, rather than butt heads.
Like all companies, Akamai has had its ups and downs (and will continue to do so), the latest “down” being that Apple and Microsoft – for which content delivery is a core part of their business – have decided to migrate much of their CDN efforts in-house rather than outsourcing it to Akamai. This loss of business has slowed down Akamai’s revenue growth, from the mid-double digits to the high-single digits (many companies would call this a “first world problem).
Akamai Stock Chart (Weekly, 10 Year)
Despite the bumps, on Tuesday’s earnings call Akamai suggested that aside from the Apple and Microsoft drag (which will likely be lapped by early next yer), Akamai’s media delivery business is actually growing at one of the fastest clips in recent years, just as many catalysts could really kick it into overdrive. This summer and fall will include three YYUUGE!! media events: the Olympics, the European Soccer championships, and the US elections. These are the kind of spectacles that in the past have given Akamai some very healthy revenue boosts. But if these were the only triggers, I’d be happy to be “longer” Akamai’s stock (AKAM) for a trade, before reverting back to my usual size position. By definition, these kind of event-driven boosts don’t last long.
This go around however, these catalysts may be bridging (and overshadowing) a much bigger upcycle for Akamai, centered around OTT (over-the-top TV), ultra-high def programming (“4k TV”), and the possibility that in 3-4 years the rollout of 5G wireless networks will reshape the need for speed in distributing mobile content. None of these tech transitions will be fast or smooth – they never are – but they have the oomph to impact Akamai in ways not seen since the widespread rollout of broadband access. In the meantime, Akamai’s other businesses (security, network acceleration, etc.) also continue to grow sales at double digit rates, and some quarters they make up more than 50% of revenues. Imagine if AKAM were ever given a decent multiple for the latter, instead of still carrying the stigma of being a bandwidth reseller.
Good luck and good trading!
More from Fil Zucchi: Market Update With DeMark Indicators: Where To Next?
Twitter: @FZucchi
The author has a long position in AKAM, AAPL, and GOOGL at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
