Despite Customer Win, Akamai Tumbles

Web content delivery firm Akamai Technologies has signed a deal to help the world’s largest theme park operator, Six Flags Inc., boost its online infrastructure and performance.

Six Flags has deployed Akamai’s EdgeSuite service to improve the speed and reliability of its Web site. The deal coincides with Six Flags’ 40th anniversary celebration; the company is revamping its content-rich Web site and is launching a multimedia marketing campaign.

Financial terms of the contract were not disclosed.

EdgeSuite helps improve the generation and delivery of dynamic content by building Web pages from components that can be targeted and delivered from a network of servers located close to end users. With a global Website audience (Six Flags operates about three dozen amusement parks in more than a dozen countries) Akamai’s technology improves the speed with which Web pages are deployed.

But Akamai’s customer win was overshadowed by a stock downgrade Wednesday by Banc of America Securities. The result: Shares fell nearly 10 percent to a new low. In early afternoon trading, Akamai was trading at 5.26, down 0.57, surpassing its April low of 5.50.

Issuing the downgrade, a Banc of America Securities analyst voiced concern that Akamai would have a difficult time reaching break-even earnings (before taxes and other charges) by 2002, as predicted by management, as demand for content delivery services slows down.

As an Internet sector, the content delivery business has been a difficult one. Though Akamai, founded in 1998 as an MIT spin-off, is the sector leader with more than half the business, it has faced a steep stock market along with publicly competitors Digital Island (NASDAQ:ISLD) and Inktomi (NASDAQ:INKT). All remain unprofitable and are burning piles of cash each quarter.

Akamai’s poor stock market performance comes two weeks before Cable & Wireless closes a deal on or about Aug. 30 to acquire Digital Island, a deal that could shore up that company’s prospects.

Digital Island, saddled with more than $1 billion debts, agreed to be acquired in May for at what observers have called a fire-sale price of $340 million.

According to a new Goldman Sachs report, the acquisition by telecom giant Cable & Wireless might be a saving grace.

In a research report Wednesday, Goldman Sachs said many content delivery network customers are beginning to have real concerns about the viability of their providers. Goldman Sachs cites “several instances” of customers terminating their hosting agreements “due to concern surrounding the hosting companys financial standing.”

Goldman Sachs went on to comment that with the backing of Cable & Wireless, Digital Island “should be able to alleviate customer concern and limit such churn.”

Some analysts have predicted continued acquisitions or consolidations among content delivery firms in light of their financial troubles.

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