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If it's Friday, it must be time to duel. Last week, my friend Rick Munarriz argued for Facebook, while I backed Twitter. This week, I'm arguing that you buy Akamai Technologies (Nasdaq: AKAM  ) ahead of (Nasdaq: AMZN  ) .

First, a disclosure: In December, at $52.08 a share, I argued that Amazon was poised to become the best stock for 2009. "So what makes Amazon special?" I wrote at the time. "Efficiency. Time and again, CEO Jeff Bezos and team have been able to create high returns on invested capital in a notoriously low-margin business."

Amazon is up more than 45% since; today, it trades for a whistle-worthy 49 times earnings.

Innovation is best when it's cheap
You'll find both Rick and I offering up stock ideas via the Motley Fool Rule Breakers service, and neither of us has ever been afraid to recommend stocks sporting hefty multiples. Growth is very often worth paying for. That's certainly true in Amazon's case -- this e-commerce kingpin is miles ahead of peers such as eBay (Nasdaq: EBAY  ) and (Nasdaq: OSTK  ) in Web-based retailing, and it's challenging Apple (Nasdaq: AAPL  ) in digital content.

But if you've got to pick just one of these stocks, based on which offers the greater growth potential over the next three years, Akamai wins in a walk. First, it trades for a much more reasonable 26.9 times earnings. Second, in terms of market cap, Amazon is almost 10 times bigger than Akamai.

The chasm is understandable: Amazon is bringing in close to $20 billion a year in revenue, versus less than $1 billion for Akamai. But here, size is a disadvantage. Akamai, operating in the massive-growth, multibillion-dollar cloud-computing market, should double upon adding roughly $900 million in new revenue. Amazon, at its present multiple, would need $20 billion in new sales to achieve the same result.

I'll take my chances with Akamai, thanks.

Dip your toes in this moat
And not just because of its valuation. Sure, Amazon is the premier operator in its industry, but Akamai's no less of a leader in web content delivery, often known as CDN services.

Rick will likely tell you that Akamai is facing an army of new competitors -- and he'll be right, sort of. There are varying styles of CDN services, but there are really only two that offer high-touch service and suites of analytical tools and support: Akamai and Limelight Networks (Nasdaq: LLNW  ) .

To be fair, BitGravity and EdgeCast show all the signs of becoming sustainable competitors. But they show no signs of burying either of the top two dogs in CDN services. Look at Akamai's numbers. Even as some competitors cut prices to make gains, Akamai's average revenue per customer (ARPU) rose from $23,200 to $23,600 year over year.

What's more, serious users of CDN services seem most comfortable with the market's twin powerhouses. Akamai has been serving content for Apple and Microsoft (Nasdaq: MSFT  ) since its earliest days. Upstarts, meanwhile, are winning business from other upstarts.

Not untouchable, but not exactly touchable, either
Now, to be fair, Akamai is anything but untouchable. Amazon has entered the low-end of the CDN business, as has AT&T. Hosting providers such as Voxel are also adding homegrown CDN services to their offerings. Should these alternatives take hold, Akamai would have a problem.

But management knows this, and it has inoculated its generous free cash flows from competitive parasites by broadening its offerings to include higher-priced, custom-tailored options, including the smarter delivery of ads.

Akamai and Amazon are alike in many ways. Both lead their industries. Both produce healthy cash flows. Both cater to a base of loyal customers. And both have well-defined growth opportunities.

One is just a lot cheaper than the other. That's why Akamai is the better buy.

Get your clicks with related Foolishness:

Akamai is a Rule Breakers recommendation. Amazon, Apple, and eBay are Stock Advisor selections. eBay and Microsoft are Inside Value picks. Try any of these Foolish services free for 30 days.

Fool contributor Tim Beyers had stock and options positions in Apple and a stock position in Akamai at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy is all out of board wax. Bummer.

Read/Post Comments (1) | Recommend This Article (6)

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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.

  • Report this Comment On May 22, 2009, at 3:55 PM, 6x7 wrote:

    I have to agree with you Tim, the growth potential of Akamai makes it much more attractive to me. As for competition eating into CDN margins, it's something to keep an eye on. In the mean time however, Akamai seems to be the clear leader in this field as evidenced by its impressive client list, which includes Amazon. Other moatworthy points of interest include a massive worldwide network of servers, and perhaps more importantly, patented algorithms (IP) that help optimize the delivery of user content. Disclosure: Long AKAM.

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