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2010's Best Tech Stock: Akamai

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Name a tech stock going into 2010 that:

  • Is a market leader.
  • Has more than $900 million in the bank.
  • Holds the pole position in an important, emerging industry.

You could have answered (NYSE: CRM  ) , but I'm thinking of another Motley Fool Rule Breakers pick. A cheaper rebel, in fact: Akamai Technologies (Nasdaq: AKAM  ) .

2009 in review
Long-term holders of Akamai have enjoyed this year, but not nearly as much as the newbies. Those who bought shares in January are up 59%. Investors who chose to buy when the stock dipped to just $9.25 a share last fall are sitting on a double.

Insiders didn't do that well, but they didn't poorly, either. Executive Chairman and former CEO George Conrades, CEO Paul Sagan, and co-founder Tom Leighton all bought at around $16 a share over the summer, and they're up more than 50% since.

Price cuts helped to produce those returns. Industry watcher Dan Rayburn reports here that Akamai has been gutting margins on delivery of video for its media and entertainment clients, leading to higher volumes profits.

Akamai recently revised its fourth-quarter guidance to $0.42 to $0.43 in adjusted per-share profit on $230 million to $235 million in revenue. Earlier estimates had called for $0.39 to $0.41 per share on $217 million to $224 million in revenue, Dow Jones reports.

The revision itself is interesting. What makes it more so is the amount of competition Akamai faces from Limelight Networks, Level 3 Communications, and several others. BT Group joined the fray last week.

2010 in preview
And yet, at 17 times its projected 2010 earnings, Akamai appears priced for further gains. Video should supply more than enough tailwind for the underlying business.

"Currently, only about 1% to 2% of total video viewing in the home is done over the Internet, but that number is increasing and we believe it is poised to at least double and double again in the next few years," Sagan told investors during Akamai's third-quarter conference call. "That growth will generate a great deal of opportunity for our media customers and for Akamai."

Sagan's being modest; Akamai's video highlights include delivering for Apple (Nasdaq: AAPL  ) and Microsoft (Nasdaq: MSFT  ) , among others. Chances are, Akamai delivered the video you were watching on your iPhone earlier. Apple TV gets its feeds via Akamai, including flicks cut in high definition.

Web-delivered video is catching on broadly. For example, during the third quarter, consumers spent 35% more time watching clips on the Internet than they did the year before, according to a new survey from Nielsen.

Analysts expect the pace of growth to continue. The Diffusion Group projects online video delivery to TVs will blossom into a $5.7 billion business by 2014. Over the same period, Pyramid Research estimates that revenue from mobile video services will reach $16 billion here in the U.S., reports.

To these researchers and more, Web video is a budding business where upstarts such as Netflix's (Nasdaq: NFLX  ) Watch Instantly service battle entrenched interests such as Hulu, which Comcast (Nasdaq: CMCSA  ) inherits thanks to the majority interest in NBC it acquired from General Electric (NYSE: GE  ) recently. The resulting rush to publish new video content should benefit the delivery boys, Akamai most of all because it's the market leader.

The Foolish bottom line
But even if it doesn't, some back-of-the-napkin math shows that the video opportunity could still be a massive catalyst for this company.

Akamai has generated $834 million in revenue over the trailing 12 months. That's equal to 5% of Pyramid's projection, and 15% of Diffusion's estimate. Either way, Akamai shouldn't have to win a majority of the resulting content delivery business in order to realize revenue hypergrowth.

And that's just from video. Akamai also delivers ads, applications, e-commerce transactions, and more. Most recently, the company began offering managed security services for those running their businesses via cloud computing.

A second wave of growth for Akamai is coming, and it's going to begin in 2010.

Is Akamai the tech stock to own 2010? Share your thoughts in the comment box below.

To see the full list of candidates for the Best Tech Stock for 2010, use the sidebar at right or click here.

Apple and Netflix are Motley Fool Stock Advisor selections. Akamai and are Motley Fool Rule Breakers recommendations. Microsoft is a Motley Fool Inside Value recommendation. Motley Fool Options has recommended a diagonal call on Microsoft. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the market-beating Rule Breakers stock-picking team. He 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. The Fool's disclosure policy is too techie for this shirt. Too techie for this shirt. So techie, it hurts.

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