VitalStream's Importance to Internap

The question I get most frequently regarding Web content delivery king Akamai Technologies (Nasdaq: AKAM  ) is whether current competition could cripple its competitive advantage. The topic came up again Friday now that InternapNetwork Services (Nasdaq: INAP  ) has agreed to acquire Akamai competitor VitalStream (Nasdaq: VSTH  ) for $217 million in stock.

I wish there were a simple answer to this one, but there isn't. Internap has long been a reseller of Akamai's services. A cordial relationship has existed between the two firms at least as long as I've owned Akamai shares, which dates back to early 2004.

Now Internap, long known for handling bandwidth, will blend VitalStream's network into its own, which would, at least in theory, substitute for the Akamai services it is selling. And that seems to be a pretty strong business. SEC filings show that Internap derived $5.2 million, or 11.8%, of its revenue in the current quarter from partners. What's more, that business was up 29.4% year over year.

Meanwhile, VitalStream has been flourishing. Revenue and gross profit have risen by a compound annual growth rate of 52.4% and 47.2%, respectively, over the past three years. And a recent deal for Eonstreams put the company front and center in enabling streamed video advertising.

So, yeah, this deal poses problems for Akamai, but they're minor in comparison with the overall opportunity. Accustream media research reports that total video streams over the Web have increased to 18 billion last year from 284.6 million during 1998. That's an average growth rate of -- wait for it -- 70% (!) annually.

With TiVo (Nasdaq: TIVO  ) taking eyeballs from classic TV ads, and with iTunes and others hawking downloadable TV shows and movies, I'd say this growth isn't likely to slow soon. And that's likely to be good news for both Internap and Akamai.

Surf's up! Catch a wave of related Foolishness:

  • Get full Foolish access to Akamai's latest analyst conference.
  • Akamai is good! No, it's bad! You decide.
  • Watch Akamai hang 10 in its latest quarter.

Fool contributor Tim Beyers owns shares of Akamai, which is aMotley Fool Rule Breakersselection. TiVo is aStock Advisorpick. Get the skinny on all of the stocks in Tim's portfolio by checking his Fool profile. The Motley Fool's disclosure policy is a rebel with a cause.


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 516351, ~/Articles/ArticleHandler.aspx, 8/21/2014 3:00:44 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement