Fool.com: Go Ahead, Akamai... Make-a My Day! (News) October 29, 1999

Go Ahead, Akamai... Make-a My Day!

By Brian Graney (TMF Panic)
October 29, 1999

After months of discussion and speculation on Web message boards and in techie-related hangouts across the country, the general U.S. investing public was finally treated to the long-awaited initial public offering of Cambridge, Massachusetts-based Internet start-up non pareil Akamai (Nasdaq: AKAM) today.

Instead of boring old Tootsie Rolls or miniature Snickers bars, trick-or-treating investors who were able to obtain shares in the company at its initial public offering price of $26 per share were handed a unique goodie for their Halloween bags -- a big, fat, gold brick. Shortly after opening for trading in the triple digits at around 1:30 p.m. EDT, shares of Akamai (say AH-kuh-my) accelerated to as high as $166 per share before giving up some of that ground and finishing the day at $145 3/16 per share.

With the company selling 9 million shares, representing a roughly 10% stake, the market granted the IPO wunderkind a first day business valuation in the neighborhood of $13 billion, putting the $1.9 billion first day run-up of 1998 IPO star eBay (Nasdaq: EBAY) to shame. In fact, the market really hasn't seen such a rapid one-day price appreciation since eMeringue (Ticker: HAFD) went public on April 1, and we all know how that story ended.

To say that folks are expecting a lot from the year-old Akamai would qualify as the understatement of the information age. The company's main claim to fame is its FreeFlow Internet content delivery system, which uses a network of 1,745 servers across 55 telecommunications networks in 24 countries to speed up the flow of Web-based content. With FreeFlow, website owners can use Akamai's servers inside points of presence (POPs) close to the end user to serve varying amounts of content. For instance, the local Akamai server could take care of serving thousands of bytes of embedded information on a page -- such as banner ads, logos, and graphics images -- while allowing the site's own Web server to handle the text-based content that goes along with that embedded data to make up a typical Web page.

The end result is faster and more reliable delivery of Web-based content for Akamai customers, which include cyberspace bigshots like Yahoo! (NYSE: YHOO) and Disney's (NYSE: DIS) GO Network, and even Web small-fries such as a little site called the The Motley Fool. The list of the firm's technology partners is even more impressive, including the likes of Microsoft (Nasdaq: MSFT), Cisco Systems (Nasdaq: CSCO), RealNetworks (Nasdaq: RNWK), Network Appliance (Nasdaq: NTAP), and Vignette (Nasdaq: VIGN).

The company's main competitor in content delivery services is Sandpiper Networks, a firm initially backed by Web heavyweights America Online (NYSE: AOL) and Inktomi (Nasdaq: INKT) that was acquired earlier this week by Digital Island (Nasdaq: ISLD) for about $625 million in stock. Even with the benefit of only a few days' worth of hindsight, that seems like a bargain given Akamai's surge today. It also goes a long way in explaining why Digital Island's stock jumped another $9 5/16 to $67 1/2 today and has nearly tripled in the past five trading days.

Trying to figure out what a company like Akamai is worth is about as much fun as herding cats (and arguably about as popular). "When you think about it, buying a stock is essentially purchasing its future cash flows, discounted back to the present," fellow Fool Warren Gump suggested in the midst of last fall's share price explosion in eBay. "If you make relatively minor changes to your expectations for a company, a soaring stock price may be justified."

Right now, the expectations are sky-high for Akamai, but that doesn't necessarily preclude them from getting even higher.

Related links:
Akamai website
Akamai message board
Fool on the Hill, 11/20/98: Internet Stocks and Valuation

Feedback about News & Commentary? Please send mail to news@fool.com.