2HRS2GO: Akamai culls another revenue stream

3 min read

Akamai Technologies shares have lost two-thirds of their value this year but it hopes that by developing another revenue stream from its existing data base it will quickly regain its momentum.

Monday's announcement that the Web page delivery service firm will be able to roughly identify the location of Internet users as well as the type of connection they're using could pay huge dividends.

The new service, called EdgeScape, will allow Web advertisers to target specific geographic regions, a valuable service in the hit or miss world of online marketing.

The best part about this service is that it taps into information the company already has. They don't have to spend millions to acquire this information. It's essentially bonus cash derived from what Akamai already does best.

Reynold Harbin, director of product management for Cambridge, Mass.-based Akamai, said EdgeScape will enable customers to locate a user's computer by country -- or by state or province if the computer is the United States or Canada. Akamai is expecting to sharpen the geographic focus to similar levels in Asia and Europe by the third quarter.

"Basically we're delivering relevant content to Web users for the Web site's stickiness -- users you are able to attracts you are able to keep,'' Harbin said in a prepared release.

Plus, EdgeScape tells advertiser whether a specific customer is using a T1 line or a 56.6K modem connection, allowing them to send video and audio adds to users with the appropriate bandwidth.

"They're basically repackaging the information they already have and reselling it," said Nitsan Hargil, an analyst at Kaufman Brothers. "It's a good way to develop another revenue stream."

Akamai (Nasdaq: AKAM) shares were off 3 5/8 to 115 5/8 Tuesday, well off its all-time high of 345 1/2 set in December.

But there are signs that this stock could be poised for a strong rebound in the second half.

"This is still a small startup company," Hargil said. "Their engineering resources are spread pretty thin so this was the earliest they were able to offer this service. They wanted to make sure it was 100 percent reliable because they're absolutely fanatical about customer service."

Hargil rates the stock a "strong buy" and has a 12-month price target of $185 a share.

Last quarter, Akamai topped analysts' estimates, losing $33.2 million, or 44 cents a share, on sales of $7.2 million.

Analysts are forecasting a loss of 57 cents a share in the second quarter and Hargil expects sales to come in around $15.8 million.

That's pretty good sequential growth.

Ironically, it's one of Akamai's best moves that's played a role in eroding its stock price.

Back in February, Akamai announced it would buy
InterVu, which develops systems to deliver video and audio over the Internet, for about $2.8 billion in stock.

That's a lot of cash for a small startup company but the acquisition gave Akamai more than 1,000 customers including AOL MovieFone, Apple, CBS and CNN, customers that will undoubtedly put this EdgeScape service to work.

Akamai's not going to turn a profit until late 2002 at the earliest, but it's starting to put the pieces together.