AKAMAI = AKA-BYE-BYE
2 years ago, AKAM was ready to break out. AAPL was gearing up to announce the huge iTunes activity. AKAM was a buy precisely because of that gap between stock price and the business actual/potential growth.
UPSIDE GONE
If people were downloading TV/movies through iTunes, then AKAM would be a buy. But the reality is that folks aren't downloading much video. The huge surge just isn't there.
OVERVALUED
Even at these low levels, AKAM has a 75 P/E. Not bad when they were growing 90% Year-over-year, but that is slowing to 40%. A still respectable rate of growth, but not for 75 P/E.
MORE COMPETITION
And competition has emerged, that didn't exist a few years ago. If GOOG wanted into this space, they could do it easily without AKAM and the iTunes bullshit.
To show the precariousness of AKAM's business, a recent tiff between NBC and AAPL over programming downloads on iTunes sent AKAM shares down ~10%. NBC downloads accounted for 30% of iTunes TV show sales (HEROES and THE OFICE, among others). AAPL is doing something stupid in response - they are pulling all NBC shows.
Not too long ago, Viacom was THE source for cable shows and they strong-armed ESPN (dropping them for a while when ESPN tried to get better rates).
Well, AAPL is trying to do the same thing and folks don't like it. Plus, as NBC is finding, they can let users get their shows via the NBC site. AAPL is about to have problems as the one-stop shop.
Other programmers may take note and bail or ask for better rates.
These are wake-up calls for AAPL that other companies are feeling confident that they do not need iTunes or AAPL.
None of this spells good things for AKAM.
UPSIDE GONE
If people were downloading TV/movies through iTunes, then AKAM would be a buy. But the reality is that folks aren't downloading much video. The huge surge just isn't there.
OVERVALUED
Even at these low levels, AKAM has a 75 P/E. Not bad when they were growing 90% Year-over-year, but that is slowing to 40%. A still respectable rate of growth, but not for 75 P/E.
MORE COMPETITION
And competition has emerged, that didn't exist a few years ago. If GOOG wanted into this space, they could do it easily without AKAM and the iTunes bullshit.
To show the precariousness of AKAM's business, a recent tiff between NBC and AAPL over programming downloads on iTunes sent AKAM shares down ~10%. NBC downloads accounted for 30% of iTunes TV show sales (HEROES and THE OFICE, among others). AAPL is doing something stupid in response - they are pulling all NBC shows.
Not too long ago, Viacom was THE source for cable shows and they strong-armed ESPN (dropping them for a while when ESPN tried to get better rates).
Well, AAPL is trying to do the same thing and folks don't like it. Plus, as NBC is finding, they can let users get their shows via the NBC site. AAPL is about to have problems as the one-stop shop.
Other programmers may take note and bail or ask for better rates.
In fact, Universal Music has also bailed on iTunes.
These are wake-up calls for AAPL that other companies are feeling confident that they do not need iTunes or AAPL.
None of this spells good things for AKAM.
posted by Andrew at
4:04 PM
6 Comments:
Andrew,
There are some good points you have made about AKAM. This stock was in 50’s and fallen to 30’s.
But I think there is always scope for appreciation from the current levels before the earring release.Also it seems the market is going up in anticipation of a Fed rate cut...AKAM might touch the 40’s before the earnings .Unless there are some bad news .Good strategy may be to wait till the earnigs?
hmm, does that mean that download volume will decrease? Your analysis is not complete.
I think with more content providers providing download capability, volumes are going to increase.
People who dont like itunes will also download.
Means more money for Akam, maybe less for Apple. Off course you have been consistently wrong on Apple as well, but we dont hold that against you.
I know you have considered ICE in the past -- but have you considered CME? Does it fit your investment objectives and goals? Do you see it fitting LR?
The issues with AKAM are demand and competition. The NBC event strikes at both: NBC walking away removes 30% of TV downloads. Not to mention that NBC can set up their own service.
Is this a negotiating ploy or the crack in the dam? I think we will see many content providers questioning the iTunes route.
And the barriers to entry keep dropping as far as iTunes and AKAM are concerned.
Sure, there is the potential to download High definition programming, but what content?
AKAM is gold if people use iTunes as an alternative to cable TV. But that is not imminent.
Actually, I have been very right about Apple and very wrong about the stock price.
Take away the one-off drop in Apple's earnings growth comes purely from somethingthey don't affect: the drop in prices of semiconductors. Take that away and Apple is actually sluggish. iPod sales are droopy, iTV was a miss. I said it was all about the iPhone and I was right.
If Apple executes well, they could really dominate the mobile communications market. If they stick to the MP3/cell phone, then they won't grow as much. They need to go after RIMM and the Blackberry type of smart phones - those are the people who will shell out $600 for a gizmo. To do that, AAPL needs email servers in corporate.
Is it enough? With a P/E of 40 and a forward p/E of 32, AAPL needs to keep generating 40% margin growth. They net 14% of sales for $3.1B of profit. They need to hit $4.3B in 12 months (40% growth) and that requires ~$8.2B in additional sales.
That has to come from Mac and iPhone sales. If they hit 10M phones, that's $6B. There are reports about stalling sales, but lets face it - this is only available in the US. Can they grow Mac sales an additional 1M units? Very likely given the 20%+ growth rates.
These are tough numbers to hit, but they can do it. But then what? Well in another year, they will be faced with having to grow $11B to meat the next 40% earnings growth. That's when Apple will start to show signs of a pause, and the stock will crash.
But that's a year away.
party on, Wayne
Coverage started on TRID with target of 23$ -- do you happen to have access to the report? I have averaged down TRID and been holding for months, with avg ~16$. Do you think its time to add a bit more at 15$ levels?
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