Data center stocks have had a very strong quarter, with Rackspace (RAX), Equinix (EQIX), Akamai (AKAM), Limelight (LLNW), and Savvis (SVVS) all near 52-week highs. The REITs, however, have not shared in many of the recent gains, in spite of CoreSite's IPO last week. Digital Realty (DLR) is up just 1.4% over the last three months, while DuPont Fabros (DFT) has been essentially flat since the third quarter began.
Is this all justified? Rackspace is now trading at roughly 45x annualized earnings, on a top line growth rate in the low 20s, and a bottom line growth rate of 60% over the last 12 months. Equinix is just under 4x revenue on a 21% top line growth rate (excluding Switch & Data), and the company is barely breaking even. Savvis is up 37% over the last three months and hasn't had any top line growth over the last 12 months. While the industry's fundamentals remain very strong, there's not enough growth to support a 5x multiple on revenue.
Showing posts with label LLNW. Show all posts
Showing posts with label LLNW. Show all posts
Monday, September 27, 2010
Monday, August 16, 2010
Akamai Insiders Have Bought Nearly 88,000 Shares This Month
I've made the point in a few recent articles that Wall Street and many industry observers are overestimating the threat that Level 3 and Limelight pose to Akamai (AKAM), just as they overestimated Cisco, AOL, and Inktomi's threats to the company then years ago.
CDNs require large support organizations dedicated to the service, which makes it challenging to simply bundle them with bandwidth. This is why after all these years, Verizon is still reselling Akamai, not competing against it, and why the top two providers of this now decade+ old service are not telcos. Moreover, in Akamai's case, its bandwidth costs are just 16% of revenue, compared to 33% for Limelight (LLNW), a figure that is not declining significantly.
Insiders at Akamai have endorsed this view, and bought over 87,950 shares since the post-earnings call sell-off. The biggest purchase came last Wednesday from Director Peter Kight, who bought 47,950 shares at $41.70, CEO Paul Sagan bought 15,000 shares a week ago Wednesday, and Director David Kenny bought 25,000 shares at $38.78 on August 4th.
While AKAM is not cheap, the market continues to overestimate its competitors' strength, and the insiders are buying on the dips.
CDNs require large support organizations dedicated to the service, which makes it challenging to simply bundle them with bandwidth. This is why after all these years, Verizon is still reselling Akamai, not competing against it, and why the top two providers of this now decade+ old service are not telcos. Moreover, in Akamai's case, its bandwidth costs are just 16% of revenue, compared to 33% for Limelight (LLNW), a figure that is not declining significantly.
Insiders at Akamai have endorsed this view, and bought over 87,950 shares since the post-earnings call sell-off. The biggest purchase came last Wednesday from Director Peter Kight, who bought 47,950 shares at $41.70, CEO Paul Sagan bought 15,000 shares a week ago Wednesday, and Director David Kenny bought 25,000 shares at $38.78 on August 4th.
While AKAM is not cheap, the market continues to overestimate its competitors' strength, and the insiders are buying on the dips.
Monday, August 9, 2010
Cisco and AOL vs. Akamai
by David Gross
Exactly ten years ago in August 2000, industry leaders were concerned about Akamai's (AKAM) domination of the CDN business, and formed two separate coalitions to do something about it. Cisco (CSCO) created the "Content Alliance", which included most of the major business ISPs of the time, such as Cable & Wireless, Genuity and PSINet. AOL and Inktomi created the "Content Bridge". Akamai's chief competitor at the time, Digital Island, joined both groups.
The conventional wisdom among analysts and Wall Streeters was that Akamai wouldn't be able to stand the competitive threats, and with the world turning against the company, it would struggle to hold its market share, let alone survive. Moreover, Cisco wanted to take matters to the IETF, to neutralize the market value of Akamai's patents.
Akamai's biggest problem back then wasn't these content groups trying to destroy its business, but its own over-expansion. It didn't need any help from AOL or Cisco when it came to wrecking its balance sheet and income statement. And successive generations of competitors haven't stopped it from improving its financials. In 2000, the company spent 47% of its revenue on bandwidth and colo fees, in 2010, it spends 16%. In 2000, it produced 62 cents of revenue for every dollar of property, plant, and equipment on its books. In 2010, it produces five dollars of revenue for every dollar of PP&E.
The conventional wisdom chorus that fretted about Cisco and AOL ten years ago, is now worrying about Limelight (LLNW) and Level 3 (LVLT). Level 3's CDN business is the old Digital Island service, three owners later. While Akamai was in the process of growing fourfold between 2003 and 2009, the Digital Island CDN was being passed through the hands of Cable & Wireless, Savvis, and Level 3, which cut the growth of what would otherwise have been a much stronger competitor. Limelight did grow faster than Akamai last quarter, and is now 1/6th the size of its larger competitor. However, Limelight's network is far more centralized with 76 POPs compared to 1,200 for Akamai. While there are operational benefits to both approaches, Akamai's is far more cost effective, with its bandwidth and colo fees amounting to just 16% of revenue, compared to 33% for Limelight.
After ten years of worrying about Akamai's competition, investors would be better off finding the next company that will grow on the back of a major cost advantage, because no one who's competed directly against Akamai the last decade has developed one.
Exactly ten years ago in August 2000, industry leaders were concerned about Akamai's (AKAM) domination of the CDN business, and formed two separate coalitions to do something about it. Cisco (CSCO) created the "Content Alliance", which included most of the major business ISPs of the time, such as Cable & Wireless, Genuity and PSINet. AOL and Inktomi created the "Content Bridge". Akamai's chief competitor at the time, Digital Island, joined both groups.
The conventional wisdom among analysts and Wall Streeters was that Akamai wouldn't be able to stand the competitive threats, and with the world turning against the company, it would struggle to hold its market share, let alone survive. Moreover, Cisco wanted to take matters to the IETF, to neutralize the market value of Akamai's patents.
Akamai's biggest problem back then wasn't these content groups trying to destroy its business, but its own over-expansion. It didn't need any help from AOL or Cisco when it came to wrecking its balance sheet and income statement. And successive generations of competitors haven't stopped it from improving its financials. In 2000, the company spent 47% of its revenue on bandwidth and colo fees, in 2010, it spends 16%. In 2000, it produced 62 cents of revenue for every dollar of property, plant, and equipment on its books. In 2010, it produces five dollars of revenue for every dollar of PP&E.
The conventional wisdom chorus that fretted about Cisco and AOL ten years ago, is now worrying about Limelight (LLNW) and Level 3 (LVLT). Level 3's CDN business is the old Digital Island service, three owners later. While Akamai was in the process of growing fourfold between 2003 and 2009, the Digital Island CDN was being passed through the hands of Cable & Wireless, Savvis, and Level 3, which cut the growth of what would otherwise have been a much stronger competitor. Limelight did grow faster than Akamai last quarter, and is now 1/6th the size of its larger competitor. However, Limelight's network is far more centralized with 76 POPs compared to 1,200 for Akamai. While there are operational benefits to both approaches, Akamai's is far more cost effective, with its bandwidth and colo fees amounting to just 16% of revenue, compared to 33% for Limelight.
After ten years of worrying about Akamai's competition, investors would be better off finding the next company that will grow on the back of a major cost advantage, because no one who's competed directly against Akamai the last decade has developed one.
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