Akamai: The Stock Is Getting Akamaized

In July, Akamai (which
means “cool” in Hawaiian) was a seemingly cool investment, trading between
$120 to $130. Since then, the stock has been like a surfer that had a very
bad wipeout.

But yesterday there were signs that the big fall in the stock price was an
overreaction. In fact, the stock rode the waves of Nasdaq, climbing
$12-27/64 to $52-51/64.

And I think there is more upside. Basically, the company has an incredibly
useful technology – and it is in high-demand.

The company had its genesis in a hotbed of innovation: the Massachusetts
Institute of Technology (MIT). You see, the inventor of the World Wide Web,
Tim Berners-Lee, saw a big problem in early 1995. That is, the Internet was
in jeopardy of becoming highly congested. So, he posed a challenge to the
MIT faculty to find a solution. Tom Leighton, a professor of Applied
Mathematics, took the challenge and analyzed the current Internet
infrastructure. He devised complex algorithms to greatly enhance the speed of
content delivery.

From there, the company was able to get funding and go public. The stock
was a high-flier.

But over the past few months there have been concerns. First of all, there
is potential competition. Related to this, of course, is the problem of
downward pricing.

But so far, Akamai has a clear technology advantage. While there will
likely be downward pricing, this should be offset by the huge volumes of
Internet traffic using Akamai’s solutions.

Yesterday, Akamai announced its earnings reports. By all accounts, there
appears to be no let-up of the company’s hyper growth. Revenues soared 50%
sequentially to $27.2 million. So far this year, the company has generated
$52.5 million in revenues. In the past quarter, the customer count increased
from 2,100 to more than 2,800. The number of recurring customer contracts
was at 1,115.

Akamai is a classic example of a first-mover that knows how to keep its
lead. In the past quarter, the company had over 6,000 servers spread across
54 countries. What’s more, the company launched two new services.

Such investments in infrastructure and R&D are crucial, since the market
opportunity is enormous. Yes, I think this will, once again, become a cool
investment.

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