Akamai Snubs the Weak Economy

The economy may be in the dumps, but the Internet is still growing. As long as it does, Akamai Technologies (Nasdaq: AKAM  ) will keep on keepin' on.

The third-quarter earnings report showed 22% revenue growth over last year to $197 million and $0.18 of GAAP net profit per diluted share, up from $0.13 per share a year ago. The Akamai cash cow pumped out $93 million of operating cash flow, up from $76 million. The company is sitting on $789 million of liquid assets.

That cash (and equivalents) is not exactly burning a hole in the company's pocket, of course. It's very nice to have a soft cash cushion to fall back on, especially when it's hard to simply go out and borrow money. But Akamai is not afraid to spend money to make money, either. The company is stepping into the online advertising market with a $95 million all-cash acquisition of ad data wrangler Acerno.

Putting Acerno's data collection capabilities together with Akamai's should open up a whole new revenue stream, and it could have wide-ranging effects on the online marketing chain. Akamai's newborn advertising service shares anonymous user data with ad networks, potentially including Google's (Nasdaq: GOOG  ) AdSense and Yahoo! (Nasdaq: YHOO  ) , to help them target their ads better. That should lead to more efficient ads, which is a win-win for everyone involved.

Advertisers get a higher return on their marketing dollar. Consumers should see fewer but more interesting ads. Publishing networks get happier customers and higher sales, and Akamai takes a small cut of the improved ad spending. If there's a loser here, it would be among Akamai's rivals. The data collection is a competitive advantage that Limelight (Nasdaq: LLNW  ) and Internap (Nasdaq: INAP  ) simply can't match today.

That's only one of Akamai's growth initiatives. The company now sells video streaming services in support of Microsoft's (Nasdaq: MSFT  ) Silverlight technology, which powered the Web videos from this summer's Olympics and will also be a part of the Netflix (Nasdaq: NFLX  ) instant viewing offerings very soon. I don't think that Netflix is an Akamai customer today, but that could change if the new product is compelling enough. If not, there's lots of other fish in Akamai's sea of potential clients.

Keep in mind, none of these improvements really had any effect on the third quarter. Akamai is growing like the weeds in my backyard even without them -- even in the middle of a global economic meltdown. Eventually, the share price should catch up to the rest of the business.

Further Foolishness:

Microsoft is a Motley Fool Inside Value pick. Google and Akamai Technologies are Motley Fool Rule Breakers selections. Netflix is a Motley Fool Stock Advisor pick. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Anders Bylund owns shares in Akamai, Google, and Netflix, but he holds no other position in any of the companies discussed here. He loves to see his investments working together. You can check out Anders' holdings or a concise bio if you like, and The Motley Fool is investors writing for investors.


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