Akamai Thriving

Both Akamai (NASDAQ:AKAM) and Limelight Networks (NASDAQ:LLNW), content delivery network (CDN) providers, are expanding their services through acquisitions. Limelight Networks recently added video management and syndication to its services with the purchase of Delve Networks. Akamai in June announced its plans to acquire Velocitude, a startup that customizes websites for mobile devices with its software-as-a-service mobile platform. Let’s take a closer look.

Limelight Networks, with annual revenue of $131.6 million in 2009, has been on an acquisitive streak. Last year, it acquired video ad insertion firm Kiptronic for about $12 million. Kiptronic also offers a solution for dynamically serving websites and videos to any mobile device. Last December, Limelight agreed to buy EyeWonder to boost its video advertising capabilities. With the recent acquisition of Delve Networks, Limelight Networks is adding video management and syndication to its suite of offerings for media and enterprise customers.

Following the deal, leading video management and distribution service provider Brightcove announced that it is transitioning to Akamai’s content delivery network. Limelight had previously owned the bulk of Brightcove’s video delivery business.

Ryan Lawyer of GigaOM says

“For Akamai, signing up Brightcove is a bit of a coup, as the white-label video management firm has a number of major media customers, as well as a wide range of smaller enterprise customers that Akamai wouldn’t have had access to otherwise. It also comes about a year after Akamai went on a spree of signing up online video platforms such as Unicorn Media, KickApps, VMIX, Multicast, Onstream Media, VBrick, KIT Digital Delve Networks. But this partnership brings together the number one CDN firm and the number one OVP platform.”

Akamai sure owes that one to Limelight!

Akamai, which had annual revenue of $859.8 million in 2009, is focusing on the mobile market. The number of Internet mobile users is expected to surpass the number of desktop Internet users in the next five years which will drive up the demand for mobile content. The $15 million Velocitude deal will allow Akamai to detect what type of phone a user is on and automatically configure the site for that phone. Customized mobile versions of websites have been around for years, but this acquisition will enable Akamai to deliver mobile content without requiring the creation of separate websites or infrastructure dedicated to mobile content. Combined with its ability to speed delivery of data, this model can provide more complicated sites on mobiles.

Akamai’s Financials
Akamai in July reported second quarter revenue of $245.3 million, up 20% y-o-y and 2% q-o-q. Net income was $38.1 million, or $0.20 per share, up 6% from $36 million, or $0.19 per share last year. Adjusted EPS was $0.64. Akamai ended the quarter with $1.1 billion in cash and repurchased shares worth $20.4 million. Gross margin was 71%, consistent with last year but down one point from last quarter.

For the third quarter, Akamai expects revenue of $242 million to $252 million or growth of 20% y-o-y at the mid-point range. It expects gross margin of 69% and adjusted EPS of $0.32 to $0.34. The stock is trading around $45 with market cap of about $8 billion. It hit a 52-week high of $53.60 on September 20.

Limelight Networks in August reported second quarter revenue of $42.2 million, up 31% y-o-y and 17% q-o-q. Net loss narrowed down to $2.3 million or $0.02 per share from a loss of $5.3 million or $0.06 per share last year and loss of $5.8 million or $0.07 last quarter. The company ended the quarter with no bank debt and approximately $83 million in cash.

For the third quarter, the company expects revenue of $46.5 million to $48.5 million. The stock is currently trading around $6 with market cap of about $575 million. It hit a 52-week high of $6.35 on September 30.

Financials of Level 3

Level 3 (NASDAQ:LVLT) in July reported second quarter revenue of $908 million, down from $942 million last year and $910 million last quarter. Net loss was $189 million, or $0.10 per share compared to net loss of $134 million or $0.08 per share last year and $238 million, or $0.14 per share last quarter. The company ended the quarter with $442 million in cash.

Core Network Services sales was $699 million compared to $706 million last year and $694 million last quarter. The company expects Core Network Services revenue to grow sequentially for the rest of 2010. The stock is currently trading for less than $1 with a market cap of about $1.5 billion. It hit a 52-week high of $0.91 on October 7.

Akamai is the favorite in the CDN market, and rightly so. The stock price reflects this position, and while a lot of the growth is factored in, this is a strong company that should continue to perform over the long term as bandwidth demand sky-rockets, and optimizing the Internet’s wildly escalating traffic will remain an important function in the foreseeable future.