Company Spotlight - Akamai Tech. (Nasdaq:AKAM)

  The Digital Delivery Guys

February 12, 2008 - Akamai Technologies (Nasdaq:AKAM) is one of those behind-the-scenes companies that most people never know, yet most of us use its services every day. Akamai helps with the delivery of high-bandwidth content like streaming audio, video, and web-based applications around the globe through its network of 25,000 servers in 69 countries. Akamai says it delivers between 10-20% of all Web traffic.

This is a volatile stock and the passion runs deep in both directions, but for tech investors with a high risk-tolerance, Akamai is a company worth knowing. Started less than a decade ago, Akamai now has revenue of more than $600 million and its customer list features marquee names like Yahoo!, Sony, Apple, MTV Networks, BestBuy.com, FedEx and GM.

It's a heavily shorted stock (i.e., speculators betting the stock price will fall) with 12.64 million shares short as of December 26, or 7.9% of its float and 3.2 times average daily volume, according to the latest data from NASDAQ. That's up from 8.8 million (1.7 days to cover) last June.

Akamai's services analyze and manage Web traffic, transmitting content from the server geographically closest to the end user. In addition to faster, more dependable delivery, Akamai provides security and administrative features that give its customers a better experience in using the Internet to reach its customers, business partners, and workforce.

Streaming audio and video is clearly a hot spot these days. Akamai has delivered over a billion songs for its online music store vendors. E-commerce customers use Akamai to sell over $36 billion worth of retail merchandise and software. With an election and the Olympic games this year, not to mention the proliferation of user-generated video content, demand for Akamai's services is sure to keep soaring this year and beyond. Throw in online movie rental/sales services from giants like Apple and Amazon.com and it's clear that Akamai is parked in front of a huge opportunity.

Analysts are also looking for the enterprise application business to become a key source of recurring revenue. The company counted 2,645 customers under long-term service contracts at the end of 2007.

Content isn't all that Akamai delivers. The company deliver 50% growth in Earnings Per Share in 2007 ($1.32) on revenue growth of 48.5% ($636 million). The analyst consensus is for EPS of $1.68 this year and $2.03 in 2009, tied to revenue estimates of $816 million and $1 billion, respectively. Those are some amazing growth figures, so it's no wonder this stock attracts plenty of attention from investors and speculators.

With the stock down sharply from its peak, AKAM now trades at a trailing P/E of 25.8 and a forward P/E of just 20.2 using 2008 estimates. The price/sales ratio of 8.5 is still high compared to most stocks, yet a fraction of where it's been in the past two years. The balance sheet is in good shape with only 15% in debt and $633 million in cash. This is a company with a very bright future, and while it's tough to determine what a fair price is to own a piece, it sure seems worth pondering. Keep in mind this stock has a wild history, but it's the present and the future that has some investors very excited.

Company Web site: www.akamai.com

- James Hale