Is the Web video boom already starting to show its age? Yes, says Akamai Technologies. The Web content distributor says that traffic growth at the media and entertainment sites it services is slowing.
That’s one of the reasons Akamai cut its full-year sales and profit guidance today, and issued a third quarter outlook below Wall Street’s estimates. Shares dropped 17% after hours to $25.96, near the company’s 52-week low.
What does that mean? Not that fewer people are watching video on the Web, or that people are watching less video on the Web. It just means that the rate of growth is decelerating. Which isn’t good news for Akamai (AKAM), one of the companies that gets paid to push Web pages and media to your computer.
What will pick up the pace for Akamai? When Web video quality increases — so Akamai can push streams and video files that are relatively larger.
The problem: Not enough U.S. homes have the bandwidth to watch a hi-def streaming movie or TV show in real-time. Anyone can download a hi-def video file, assuming their computer is fast enough to play it back. But streaming a hi-def video and watching it as it downloads requires a fatter pipe. In an interview after his earnings call, Akamai CEO Paul Sagan told us that just a low, single-digit percentage of U.S. households currently have enough bandwidth for that.
That should change as Verizon continues building out and selling its super-fast, fibre optic-based FiOS service, and cable giants like Comcast (CMCSA) upgrade their networks. But it’ll still be three to five years before enough homes have the bandwidth to handle hi-def Web video streams, Sagan says. That will, in theory, stimulate more growth for Akamai. But it’s not baked into next quarter’s guidance.