Digital Island's Dream Alliance
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It didn't take long for investors to pick out the big winner in the alliance between Digital Island, Inktomi and RealNetworks to launch a global network for broadcasting video and audio.
It's international Internet services provider Digital Island (ISLD), whose shares rose 32% to close at $25 Tuesday after the three-way agreement was announced on Labor Day. Its shares continued up Wednesday, trading at $28 at 1 p.m., a eye-popping 48% increase over last Friday's $18.88 closing price.
Caching server vendor Inktomi (INKT) saw its shares climb more modestly in the wake of the deal, trading at $120 early Wednesday afternoon, or 3.7% above Friday's close. Streaming multimedia software leader RealNetworks (RNWK), meanwhile, fell nearly 3% since Friday, trading Wednesday at $85.31.
The truth is the technology pact is good for all three companies. For caching server vendor Inktomi, the new broadcasting network provides a highly visible demonstration of its software's ability to improve the performance of bandwidth-intensive multimedia content over the Internet.
Digital Island, though, gains the most. By partnering with two of the most notable Internet companies, San Francisco-based Digital Island has positioned itself to be an integral part of a potentially huge success story.
Bandwidth constraints have made multimedia transmission problematic and unsatisfying for corporations and consumers. These three companies have a chance to show how it can be done right. And with the demand for quality multimedia over the 'Net just beginning to take off, the timing of the alliance couldn't be better.
Digital Island offers international corporations a number of Internet services, including content distribution, network management and application hosting. It operates data centers in New York, California, Hawaii and England that link via dedicated lines to ISPs in 17 countries.
The company already has shown impressive growth. For the nine months ended June 30, revenue was $7.5 million, an increase of 429% over the $1.4 million for the same period a year ago. Revenue in the quarter ended June 30 was $3.7 million, compared to $725,000 in the year-ago quarter.
By using RealNetworks' G2 software for delivering multimedia and Inktomi's server software for storing data, Digital Island improves its network and ability to attract and handle more corporate customers.
Digital Island went public on June 29, offering 6 million shares at $10 each. In the next two weeks the stock soared, hitting as high as $40 per share before falling fast during the monthlong market selloff that began in mid-July, and then trading in the teens for most of August.
At $18 per share, Digital Island was trading around 50x revenue. At $27 per share -- with a market cap of about $900 million -- it's a little pricier, at 69x revenue. But the company has consistently grown revenue at least fivefold in each of the past three quarters, and seems poisedto break out as a new star in the infrastructure arena.
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