Cotendo Goes to Akamai - Analyst Blog
23 Dicembre 2011 - 5:10PM
Zacks
Confirming earlier rumors, Akamai Technologies Inc.
(AKAM)
recently announced that it is buying competitor
Cotendo for
$268.0 million in cash. The deal is expected to close in the first
half of 2012. Shares jumped 18.6% to close at $31.63 following the
news.
Cotendo
specializes in software and services that improve the delivery of
content across the Web and on mobile-device networks. In less than
three years of its launch, Cotendo has been successful in acquiring a
large clientele (approximately 300 customers) including some big
tech companies, such as Facebook, Zynga Inc.
(ZNGA),
MyYearBook, HTC, Microsoft Corp.
(MSFT) and
Google Inc. (GOOG).
Over the last 12 months, Cotendo emerged as the most notable
competitor of Akamai in the higher margin value-added services (VAS)
market, after it won some major deals. Cotendo also sells its VAS at a
comparatively lower price, which started putting tremendous
pressure on Akamai’s higher-margin revenue growth and customer
base. In the third quarter ended September 30, VAS contributed
58.0% of Akamai’s total revenue.
To counter the growing threat from Cotendo, Akamai sued the company for
violating its patents in November 2010. However, this had been a
regular practice with Akamai, and notably, this is the third instance when it
has acquired a company earlier sued for patent violation. The other
two companies were Digital Island and Speedera.
Although the current purchase price is slightly below the
rumored figure of $300.0 million to $350.0 million,
Akamai is
paying approximately 6 times of the estimated revenue for next
year, which reflects the growing value of Cotendo, in our view. Besides
lowering competition from the VAS sector, the acquisition is
expected to strengthen Akamai’s dominant position in the dynamic
site application (DSA) market.
However, we believe that the major growth driver remains
Cotendo’s mobile content acceleration products and
services. We note that to-date Akamai does not have a proper product
portfolio for the mobile cloud and is yet to launch a product for
acceleration of mobile content delivery. The joint solution with
Ericsson, called mobile cloud accelerator is expected to be
available only in some markets by the middle of next year.
On the other hand, Cotendo launched its mobile acceleration product some
time in 2011 and analysts believe that the ready availability of
Cotendo’s product will expand Akamai’s mobile solutions
portfolio going forward.
We also believe that the acquisition will provide significant
competitive edge to Akamai compared to other established content delivery
network providers (CDN) such as Limelight Networks Inc.
(LLNW), and
Level 3 Communications Inc.
(LVLT), as
well as new entrants CDNetworks, AT&T Inc.
(T) and Verizon Communications Inc.
(VZ) over the
long term.
We maintain our Neutral recommendation on Akamai over the long term (6-12
months). Currently, Akamai has a Zacks #3 Rank, which implies a Hold rating
on a short-term basis.
AKAMAI TECH (AKAM): Free Stock Analysis Report
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VERIZON COMM (VZ): Free Stock Analysis Report
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