Akamai Eyes Cotendo Acquisition - Analyst Blog
28 Novembre 2011 - 10:30AM
Zacks
Reportedly, Akamai
Technologies Inc. (AKAM) is in talks to buy Cotendo, a
content delivery network and application delivery network provider.
Akamai is supposedly paying in the range of $300 million to $350
million for the company.
Cotendo has its headquarters in
Sunnyvale, California, with a research and development facility in
Netanya, Israel. Cotendo caters to 300 customers including
telecommunications vendors, e-commerce sites, social networks, and
advertising networks. Some of the clientele includes Facebook,
Zynga, MyYearBook, Microsoft Corp. (MSFT) and
Google Inc. (GOOG).
Cotendo’s expertise not only
include the acceleration of services for dynamic Web apps, static
and dynamic web content, performance administering and automatic
failover, but also real-time reporting and analytics. The company
is expected to generate $20 million to $30 million in sales in
2011. Moreover, a certain distribution agreement with
AT&T Inc. (T) is expected to garner another
$30 million in revenues in the next four years. This would be
incremental to Akamai’s top-line going forward.
Akamai already controls nearly
60.0% of the content management and streaming market. Cotendo and
others control the remaining share. On that note, following this
acquisition, Akamai will control a larger share of the content
management and streaming market.
Moreover, Akamai is set to expand
its presence in Central and Eastern Europe (CEE). The company will
extend its services to five countries in the region, namely the
Czech Republic, Hungary, Poland, Romania and Slovakia. Akamai will
also open a branch office in Krakow, Poland to support its CEE
customers. Akamai is expected to benefit from the huge demand in
the region. According to research firm Forrester, the CEE region is
estimated to reach overall Internet adoption rates of 54% by
2013.
Akamai is also trying to strengthen
its existing channel partner program in order to support different
verticals such as enterprise, commerce, financial services,
high-tech, manufacturing and media markets in CEE going forward. We
believe that this acquisition will help Akamai take significant
market share in the region, as it will enjoy a first-mover
advantage. Moreover, diversified operations will also boost
top-line growth in our view.
Akamai sued Cotendo for violating
its patents in November 2010. Interestingly, this is not the first
time that the company acquired a company that it had earlier sued
for patent violation. In fact, the last two companies that Akamai
acquired were ones that it had sued earlier (Digital Island and
Speedera).
Recommendation
We maintain our Neutral
recommendation on Akamai over the long term (6-12 months) due to
higher capital expenditure and increasing competition from
companies, such as Level 3 Communications Inc.
(LVLT) and Limelight Networks Inc. (LLNW).
Moreover, Akamai is also seeing a good bit of competition from
companies like CDNetworks that are using new technologies in the
media vertical. The resultant increase in pricing pressure is a
concern, since the media vertical contributes a significant portion
of Akamai’s revenue. Amazon‘s entry into the digital audio and
video streaming business is an added risk.
However, we believe that the
increasing use of cloud computing technology, higher adoption of
value-added solutions, aggressive share repurchase, strategic
partnerships, acquisitions and growth of online video are positives
for the stock over the long term.
Currently, Akamai has a Zacks #3
Rank, which implies a ‘Hold’ rating on a short-term basis.
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