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More than anything else, managers determine returns. They set strategy, hire key team members, oversee operations, and cash paychecks. Every move they make either enhances or destroys shareholder capital.
It pays to know who these men and women are; how they're paid; whether they, too, are owners; and how they perform versus competitors in certain key metrics. In this regular column, I'll examine all that and more with the goal of enhancing our understanding of some of the top stocks in Fooldom.
Next up: Akamai Technologies (Nasdaq: AKAM ) . Is the executive team of the leading Web-content delivery network doing all it can to earn you outsized returns?
|CAPS stars (5 max)||****|
|Bullish pitches||454 out of 476|
|Highest-rated peers||Spark Networks, Photochannel Networks, Internet Initiative Japan|
Data current as of Feb. 26.
Whether you trust Akamai's management probably has a lot to do with your holding period. If you're a trader, you don't trust these guys at all. This isn't the sort of beat-and-raise stock story every trader dreams of, wherein breathtaking numbers result in consistently higher guidance and dazzling quarterly returns. Management's too focused on winning the long war.
Rewind to 2006 with me. In October of that year, CEO Paul Sagan boldly proclaimed that his company's goal was to join an elite club of software companies producing more than $1 billion in annual revenue. That may not seem like much now, with all the interest in content-delivery networks and cloud computing. But at the time, Akamai was finishing a fiscal year in which it generated just $428.7 million in revenue. Sagan was asking the members of his sales team to more than double their output. They did.
And they did it while facing a wide variety of challenges. Nearly half of Akamai's revenue comes from low-margin delivery of static Web content, such as cached video. Everyone wants a piece of that market. Level 3 Communications (Nasdaq: LVLT ) spent $14 million in Q4 to build out its content network to handle traffic from Netflix (Nasdaq: NFLX ) , which until recently had been relying on Akamai as its primary CDN partner.
Netflix isn't the only one to restructure its deal with Akamai. Last quarter, the company cited lower upfront payments in some large contract renewals as cause for giving worse-than-expected Q1 revenue and profit guidance.
|Paul Sagan, Chief Executive Officer||13||$1,554,804||202,592|
|David Kenny, President||1||$50,000||33,116|
|Tom Leighton, Co-Founder and Chief Scientist||13||$20,000||3,746,967**|
|J.D. Sherman, Chief Financial Officer||6||$824,747||98,965|
Source: Capital IQ, a division of Standard & Poor's. (Data current as of Feb. 21.)
*Includes only direct holdings.
**Not directly owned but controlled through several trusts.
But again, this shouldn't come as a surprise. Sagan and his team have proved time and again that they're willing to sacrifice short-term gains for a long-term growth, often with excellent results. In this case, Akamai made concessions to lock in some customers to long-term deals that get sweeter as more content flows across its network.
Sagan's been around long enough to know this is an almost sure bet. He joined Akamai in October 1998, months after Chief Scientist Leighton and the late Danny Lewin co-founded the company. For most of those early years, he served opposite then-CEO and current Chairman George Conrades as Akamai's president. There are very few challenges this tenured team hasn't already dealt with multiple times before.
Management analysis versus competitors
Return on Capital
Return on Equity
|Internap Network Services (Nasdaq: INAP )||3.52%||39.7%||0.2%||(1.9%)|
|Level 3 Communications||3.53%||59.2%||(0.8%)||(372.5%)|
|Limelight Networks (Nasdaq: LLNW )||10.87%||44.0%||(6.5%)||(8.9%)|
Source: Capital IQ, a division of Standard & Poor's. (Data current as of Feb. 26.)
Akamai is a financial powerhouse when compared with its direct competitors. The company boasts better margins and better returns on equity and capital, and it's flush with more than $1.2 billion in total cash and investments on its balance sheet. (Akamai eliminated the last of its debt in 2010.)
Sounds good, right? Sure, but don't get too cocky. This isn't the only competition Akamai faces. AT&T (NYSE: T ) is offering CDN services from upstart EdgeCast, while Google (Nasdaq: GOOG ) has teamed with Cotendo, which Akamai is suing on claims of patent infringement. Sagan and team will have to fight for every dollar of profit.
Expect them to win more than their shares of scuffles. They've seen competitors come and go before, and they're as battle-tested a bunch as you'll find.
Do you agree? Disagree? Let us know what you think about Akamai's opportunity here and abroad using the comments box below. You can also rate Akamai Technologies in Motley Fool CAPS.