Goldman added Akamai (AKAM) to their “Conviction Sell” list last Thursday, citing increased competition, macro headwinds, and the threat of P2P disruption. FBR thinks this is silly, but makes a weak bull case.
AKAM is “insulated” from competition from smaller CDNs offering “vanilla” content deliver, FBR says. FBR also says AKAM stands to benefit from stablizing video delivery prices and more ad dollars moving online:
We believe the price of video delivery has continued to stabilise. We think price declines accelerated in the back half of 2007 due to volume discounting and aggressive pricing tactics from recent CDN entrants. In our view, price discounts appear to be largely driven by volume discounting, and these price discounts are more than offset by the increase in volume commitments.
Content providers have been receiving increasing CPMs (cost-per-thousand ad impressions) as more ad dollars continue to move online, targeted at premium/professional content. We believe AKAM is in a solid position to leverage this increasing advertisement spending directed at premium content providers due to the CDN’s solid blue-chip customer base and focus on adding quality customers rather than quantity of customers.
Who makes a more persuasive case? So far, Goldman. More competition, economic weakness, and the threat of disruption from a new solution creates significant uncertainty. FBR maintains Outperform and $50 target.