Stock Cheat Sheet: Akamai

Get to know a company in less than five minutes: That's what a Motley Fool Cheat Sheet is all about. If you're new to Akamai Technologies (Nasdaq: AKAM  ) , consider this your Foolish way to get introduced and in the know.

What it does
Akamai owns a "fleet" of more than 60,000 servers in various locations worldwide. These servers host content for thousands of companies and organizations that rely on Akamai to operate what essentially amounts to a digital postal service. More formally, this is called a content delivery network, or CDN.

Everything travels through the Internet as packets of data, just as traditional mail is sent through physical parcels. Akamai's unique advantage is its aforementioned huge network of servers across the globe, which act as distribution points, and its expertise in software that can efficiently sort packets and optimize data delivery.

These resources allow the company to help its clients find ways to deliver their content more quickly. If those clients don't even want to bother with delivery themselves, Akamai is willing to assume those responsibilities entirely. (In essence, Akamai becomes the client's digital courier service.)

How it stacks up
Akamai is one of only a few publicly traded pure-play CDNs. However, the significance of these digital postal networks is not lost on the rest of the world. Many telecom companies have taken it upon themselves to fill this highly demanded role.

2009 data

Total Revenue

EBIT Margin

R&D Spend

Capital Investment Spend (new servers, etc.)

Pure Plays:

       

Akamai

$889.4 million

28.7%

$46.0 million

$93.3 million

Limelight (Nasdaq: LLNW  )

$134.6 million

-17.4%

$8.7 million

$23.9 million

Non-Pure Plays:

       

Internap (Nasdaq: INAP  )

$255.7 million

-1.8%

$3.8 million

$15.7 million

Level 3 Communications (Nasdaq: LVLT  )

$3,692.0 million

-3%

-

$317 million

What to watch out for
Like most tech companies, Akamai is by no means the only business doing what it does. As technology improves, server and bandwidth prices will come down, and the industry on the whole will become increasingly commoditized. Ultimately, even if this doesn't take market share away from Akamai, it's still going to hurt the company's margins, as its pricing power slowly fades away.

Why you should care
As you can imagine, being the Internet's postal service can be lucrative. The dynamics of the business are sort of winner-take-all; currently, no clear king of the Internet has been declared. But of the pure plays, Akamai is ahead by far, and perhaps the only one with actually profitable operations. If Akamai can maintain its lead, it can become the No. 1 player -- if not the only player -- in a service field with very high demand.

Motley Fool Rule Breakers analyst Sean Sun does not own any shares in any of the companies. Akamai Technologies is a Rule Breakers recommendation. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy


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