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Should Akamai Investors Be Worried About Verizon's Latest Move?

By Erin Kennedy and Evan Niu, CFA – Dec 9, 2013 at 7:30PM

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Verizon has found a new partner for its content delivery network. Is Verizon dumping Akamai?

Over the weekend, Verizon Communications (VZ -2.91%) confirmed that it acquired content delivery network specialist EdgeCast Networks. Third-party estimates peg the deal's value in the ballpark of $350 million. The move vertically integrates Verizon's video streaming business, which should strengthen its appeal within the enterprise. EdgeCast has more than 6,000 customers and is consistently profitable, although the dilemma for Verizon will be that some of those customers are current competitors to Verizon.

Akamai (AKAM -2.33%) shares dropped more than 1% today on the news, as Verizon has long been a reseller and customer of Akamai's own CDN services. With the deal, Verizon could potentially shift its attention to its own newly acquired offerings. CDN services have become commoditized in recent years, with players losing pricing power. Akamai certainly can't be pleased to see one of its prominent partners scooping up one of its competitors.

In this segment of Tech Teardown, Erin Kennedy discusses Big Red's big buy with Evan Niu, CFA, our tech and telecom bureau chief.

Erin Kennedy has no position in any stocks mentioned. Evan Niu, CFA, owns shares of Verizon Communications. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Stocks Mentioned

Verizon Communications Stock Quote
Verizon Communications
VZ
$37.07 (-2.91%) $-1.11
Akamai Technologies Stock Quote
Akamai Technologies
AKAM
$91.60 (-2.33%) $-2.19

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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